The Bull Flag Pattern Trading Strategy

First, it is one of the most popular chart patterns in the market. It is very rare not to see it in the market on any given day. All three bull flag patterns are perceived as possible signs that a stock that may be trying to break out of a consolidation and continue an upward trend in price. The breakout is where you will take your trade when using the flag pattern. After this period of consolidation and the formation of a clear price channel, the market will inevitably break out to either side.

• It could also be because of a sudden entry of bulls.
• Use a channel, parallel lines, or separate horizontal lines to draw the flag.
• As it reaches the endpoint, the price should break above the top boundary of the flag pattern.
• They are one of my favorite technical structures to trade because they typically offer favorable entries and precise targets.
• Range market is one of the most challenging market conditions to trade.
• It then recedes for 3 candles and then breaks out again.

Place a buy order immediately above the flag’s upper line. Partnerships Help your customers succeed in the markets with a HowToTrade partnership. Trading analysts Meet the market analyst team that will be providing you with the best trading knowledge. Trading Academy Learn more about https://www.bigshotrading.info/ the leading Academy to Career Funded Trader Program. Your entire journey to becoming a serious trader. The indicator analyzes the last 600 bars in search of matches with a given template of 5 points. The points found by the indicator are tied to the most suitable pivot points.

Five characteristics of a bull flag pattern

When I trade a bull flag stock pattern, the biggest difference from a flat top breakout is that the consolidation is occurring BELOW the high. Usually, there is a surge in volume as the stock builds the flag pole. Volume then tapers off precipitously as the stock price consolidates. The breakout from the bull flag often sees another increase in Bull Flag Pattern volume, although volume may not increase dramatically. This information has been prepared by IG, a trading name of IG Markets Limited. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information.

If you observe the EUR/USD chart below, you can see each formation part. Get free access to our live streams and our market analysts will show you exactly how to read the charts.

Remember, Patterns Don’t Always Work

A bear flag is identical to a bull flag except the trend will be to the downside. You’ll have a sharp down move on high relative volume followed by a slight pullback before continuing on the trend. There are a couple of different ways to manage this trade. The most common is to place a stop below the consolidation area. In the example above, you can see the line drawn out on the bottom of the flag pattern. This is the point where you know that this setup is no longer working out and its time to take a loss and move on. Let’s look at some examples of bullish flags appearing on price charts in order to illustrate the concept and how they appear visually.

We discuss this strategy in detail in our post on liquidity traps. As a result of this, the bullish flag pattern is known as a bullish continuation pattern.

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While CMN could enter another parabolic rise, often a stock will come back to test the breakout area a few sessions later, offering a second entry. The shape of the flag is not as important as the underlying psychology behind the pattern. Basically, despite a strong vertical rally, the stock refuses to drop appreciably, as bulls snap up any shares they can get. The breakout from a flag often results in a powerful move higher, measuring the length of the prior flag pole.