Bull Flag Trading Pattern Explained

Whatever the case is, this is a sign of strength and the market could breakout higher. What you’re looking for is a shallow pullback that consists of smaller range candles. He is the most followed trader in Singapore with more than 100,000 traders reading his blog every month… As you can see, the stock was on a strong bull run, when it made a major gap on 31st July 2018. You should use a Fibonacci retracement tool to identify the retracement level.

Instead, buying at the upper side means that bulls are usually in control. A Pennant is basically a variant of a Flag where the area of consolidation has converging trend lines, similar to a Triangle. The bear flag is an upside-down version of the bull flag. Eventually, the price peaks and forms an orderly pullback where the highs and lows are literally parallel to each other, forming a tilted rectangle.

The Bullish Flag Pattern — Pros and Cons

Notice how on this 30-minute chart, AMC has been mostly range-bound for a few days, bouncing between support and resistance. However, once volume recedes into the pullback, the bull flag will overcome the selling pressure and break this counter-trend consolidation.

• It is very rare not to see it in the market on any given day.
• In the end, the price should break above the upper boundary of the pattern.
• Read on to learn more about the bull flag and its use in trading forex currency pairs.
• A bearish flag is the exact opposite of a bullish flag.
• Like most patterns, volume must be present on the breakout.
• Hence, a strong bull flag usually needs retracement between 38.2% to 50% before breaking the upper trend line.

Bull flags are usually formed in strong uptrends and are considered continuation patterns. Therefore, this pattern indicates that the market is pausing before moving in the same direction of the primary trend. A breakout strategy aims to capitalize on a sudden, definitive move in price action. In the case of the bullish flag formation, this means that we are looking to buy into the market in anticipation of a robust extension of the existing uptrend. Many small-cap assets are prone to explosive moves upwards, and the chart might simply create a double-top at the previous flag pole. Traders should look into the local trading history of the asset to establish a price target for the trade.

When Is The Best Time To Sell…

This is the opposite of a bear flag, which focuses on downtrends. As a general rule, breakouts are most effective when accompanied by an uptick in traded volumes. For example, a day trader might find a large move on the 5-minute chart upwards, followed by a handful of candles retracing this move.

While all chart patterns are susceptible to false signals and surprise moves, bullish flags are among the most reliable and effective patterns. https://www.bigshotrading.info/ The flag and pennant patterns are commonly found patterns in the price charts of financially traded assets (stocks, bonds, futures, etc.).

Bull Flag Chart Pattern & Trading Strategies

As the name itself suggests, a bull flag is a bullish pattern, unlike the bear flag that takes place in the middle of a downtrend. While no one knows whether the market rally will continue or reverse, traders should follow price action and let the probabilities take care of the rest.

Now, what you want is for the price to be above the 50-period moving average. If the price breaks above the swing high, go long with stop loss 1 ATR below the low Bull Flag Pattern of the Bull Flag. If you enter on the break of the highs, it could be a false breakout. But, if it’s a real breakout, it’s the best possible price you can get.