What Is A Bull Flag Pattern Bullish & How to Trade With It

Bull Flag Pattern

The entry-level and stop-loss level is illustrated in the next chart. In the next chart, we can see that the price makes a higher low, a point from which we can draw the flag. If the higher low is unable to hold, the ideal entry will be below that price structure. A failed breakout that reverses the prices back to the previous range. In conclusion, it’s important to understand that most trends are the result of a breakout.

  • It’s the main trading strategy of the bull flag pattern.
  • This is because it helps identify the areas where corrective action occurs before the previous trend continues.
  • However, this doesn’t cause a rapid decline in price, as bullish traders begin buying, hoping to capitalize on future increases in price.
  • The bull flag is interpreted as a stronger trend continuation signal when its formation includes three specific points of high volume.
  • The strong directional move up is known as the ‘flagpole’, while the slow counter trend move lower is what is referred to as the ‘flag’.

The flag and pennant patterns are commonly found patterns in the price charts of financially traded assets (stocks, bonds, futures, etc.). The patterns are characterized by a clear direction of the price trend, followed by a consolidation and rangebound movement, which is then followed by a resumption of the trend. They are continuation patterns and form when the asset prices rally or fall sharply.

How to set your entries, stops, and exits when trading the Bull Flag Pattern

A wedge is a chart pattern marked by converging trend lines on a price chart. The pattern consists of two trend lines that move in the same direction as the channel gets narrower until one of the… Pattern is an opportunity for traders to join the uptrend when it is about to resume after a short break.

Instead, some people look to buy at a price just above the resistance level. This would be a new high and an indicator that the breakout is in process. You can use a buy stop order to make sure that you get it at the price you want. Bull flags closely resemble another chart pattern – the bullish pennant. Both the flag and pennant patterns are continuation patterns that generate a buy signal following an upside breakout from a downside corrective retracement. Not only that the bullish flag pattern is a very simple technical indicator, but it can lead to moves that are of the same magnitude as the flag pole movement.

How to trade the Bull Flag Pattern — The Trend Continuation

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  • Once you have selected the relevant trade pair, click on the Indicatorsbutton at the top of the chart and a new window will pop up.
  • First, we measure the distance the price traveled from the starting point of the bullish flag pattern to the flag and project that move to the upside.
  • Followed by a tight range that slowly drifts lower to form the flag portion of the bullish flag pattern.
  • Now, the first thing you need to do is to spot a downtrend and wait for the price to break its trend line resistance.
  • First of all, however, we need to know the key features to look for when trading the bullish flag pattern.
  • The angle of this move is irrelevant in terms of the validity of the flag pattern.

However, once volume recedes into the pullback, the bull flag will overcome the selling pressure and break this counter-trend consolidation. And the flag itself is not always a neat rising or falling channel. What is most important is that overall pattern respects the general steps mentioned above.

What is a flag pattern?

Before we get started, it’s important to emphasize that bull flag patterns apply to uptrends. So, our trading strategies are designed to engage the “buy” or “long” side of the market.

Joey Fundora has 17+ years of experience as an independent stock trader, specializing in discretionary swing trading through technical analysis. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. A Pennant is basically a variant of a Flag where the area of consolidation has converging trend lines, similar to a Triangle. A flag is a relatively rapid chart formation that appears as a small channel after a steep trend, which develops in the opposite direction. Determine significant support and resistance levels with the help of pivot points. As for the eventual profit, it can be equal to the length of the flagpole.

How to Trade The Bull Flag Pattern

It also clarifies the similarities with the Bull Flag Pattern, which has the same core properties. The only difference between the bull flag and the bear flag is in the direction of the prevailing trend.

Why is ascending triangle bullish?

Ascending triangle patterns are bullish, meaning that they indicate that a security's price is likely to climb higher as the pattern completes itself. This pattern is created with two trendlines.

SPX500, together with Nasdaq, has incredible power and is a great opportunity for traders and investors. On the 4h/daily chart, we have a descending broadening wedge, so you can wait for a breakout of this pattern to enter a long position.

Trading Volumes for the Bull Flag

Furthermore, the flag pole was approximately 260 pips while the continuation only resulted in a 230 pip rally. So while the two were very close in terms of distance traveled, there was a slight difference. A bit different from the GBPUSD flag above, this bullish flag on AUDCHF extended almost an equal distance to that of the flag pole itself. For some reason, fan tokens have been very strong in recent weeks, so it’s a good time to buy! We have an inverse head and shoulders and a falling wedge pattern on the daily and weekly charts, which is great to see.

The “bull flag” or “bullish flag pattern” is a powerful indicator for trading uptrends or topside market breakouts. In both cases, a breakout occurs in a strong manner. After a series of the smaller candles, the buyers reassume control of the price action and break the upper trend line to the upside, which activates the bull flag pattern. Unlike a bullish flag, in a bearish flag pattern, the volume does not always decline during the consolidation.

How to trade the Bull Flag Pattern — The Breakout

The price corrected for three weeks during the strong uptrend but continued its upward movement later. A sharp uptrend should always precede the pattern followed by https://www.bigshotrading.info/ a correction. The pattern is short-term because it’s just a consolidation within the overall trend. The correction or the pattern term depends on the timeframe.

Bull Flag Pattern

Plan your trading strategy according the identified flag trends. Find the flag pole that will represent an initial decline, which can either be steep or slowly sloping. As such, the best strategy is usually to buy the stock when it moves past the upper side of the channel. As you can see, the stock was on a strong bull run, when it made a major gap on 31st July 2018.

With the bullish flag, the idea is to participate in a strong uptrend. Meanwhile, with the bearish flag pattern, the idea is to trade short in the direction of the prevailing downtrend. Following the creation of a short-term peak, the price action starts a correction to the downside. The third variation of the bull flag pattern is the bull pennant. Instead of a rectangular outline of the flag, the pennant consolidates the stock in what looks like a triangle with the top line descending and the bottom line ascending. This means that the support and resistance levels will not be trading at equal distance levels but instead converge in a smaller trading window before having a breakout. The bullish flag pattern derives its name from its appearance on a price chart, which resembles a flag pole with a flag extending from it, angled slightly downward.