bull flag trading strategy: A Bull Flag Pattern Trading Strategy A Complete Guide

Nonetheless, for a pennant pattern to be bullish, you want it to have similar characteristics to a bull flag with regard to volume. The only real difference is that the pattern will be creating higher lows and lower highs into the apex. Notice in this example of symbol AMC, you see a perfect bull flag formation on the 30-minute chart. However, once volume recedes into the pullback, the bull flag will overcome the selling pressure and break this counter-trend consolidation. It means that you need to identify range markets and spot where their support and resistance are.

So in a downtrend, I’ll choose to skip the trade even if there’s a bull flag pattern formed. If you’re looking for free scanners to find bull flag patterns you can check out Finviz or Chartmill. Overall, both are bullish patterns that facilitate an extension of the uptrend. In the chart below, we see GBP/USD price movements on a daily basis. The flagpole covers the beginning of an uptrend.

Also, with this strategy, you don’t have to track the price dynamics. Let’s look at some strategies implemented to trading the bull flag. You can open a long position when, after a downward consolidation, the candle closes above the upper limit of the trend. First, an impulsive bullish trend — the flagpole — is formed.

Spotting the Bull Flag Pattern

The flag pattern resembles a rectangular pattern. A trader should be careful when defining the bull flag candlestick pattern. The bull pattern is a key element of many trading strategies. It’s helpful as a sign of the trend continuation and a tool that provides entry and limit levels. In this example you have AMC breaking out of its prior trading range on increased volume.

The optimal place to buy a bull flag breakout is once the trend begins to shift once again in the desired direction. You’ll buy the break of the prior candle’s high. In this 30-minute chart example, you can see that the first candle to make a new high inside the bull flag becomes the breakout candle. Lastly, be sure to analyze volume to determine the reliability of your bull flags. If volume expansion returns well on a stock, it should lead to higher prices. This is somewhat discretionary, but you don’t want to see a weak breakout on low volume.

The Bullish Flag Pattern — Pros and Cons

After a series of the smaller bull flag trading strategy, the buyers reassume control of the price action and break the upper trend line to the upside, which activates the bull flag pattern. Following the creation of a short-term peak, the price action starts a correction to the downside. 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.

Volume patterns may often be used in conjunction with flag patterns, with the aim of further validating these formations and their assumed outcomes. Every bull flag pattern will be slightly different. But remember, this isn’t an exact science … That’s why you need a solid stop loss in place. A common exit plan on a bull flag pattern is to place your stop at the lowest part of the flag after you enter on its volume peak.

Bear Flag Pattern

In an uptrend a bull flag will highlight a slow consolidation lower after an aggressive move higher. This suggests more buying enthusiasm on the move up than on the move down and alludes to the momentum as remaining positive for the security in question. You can lose your money rapidly due to leverage.

Most importantly, the guidehttps://g-markets.net/ above are not definitive. Tweak them to form your system of identifying bull flag patterns. Cantel Medical Corp.’s price chart is an example that appears to have broken out from a bull flag pattern. The top of the flag was clearly defined near the $15 area and CMN was able to close above that level. 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.

We have a daily trading chart of the EUR/USD pair. The price corrected for three weeks during the strong uptrend but continued its upward movement later. Pay attention to how the inside candles formed during the flag. They put in consecutive lower highs until the breakout day, which took them out.

In this guide, we’ve defined the bull flag pattern broadly. This approach covers generic multi-legged pullbacks. The close of this bar was the bear flag entry signal. There were two pattern stop-loss levels available. But after the examples above, you should be familiar with our bull flag guidelines. So you can apply the same concepts to identify bear flags.

The answer is new buyers are still entering and sellers are not yet controlling the price. A flag pattern is highlighted from a strong directional move, followed by a slow counter trend move. And it’s an awesome way to stay disciplined while trading.

Step 3: Take a Long Position at the Breakout

We’ve mentioned the Volume indicator that can confirm the upward trend continuation and the bull flag’s effectiveness. There should be an uptrend as the bull flag is a continuation pattern, not a reversal. A sharp uptrend should always precede the pattern followed by a correction.

Once you find consistency trading the first bull flag rally, you can start branching out. A flat top breakout is a bull flag that consolidates sideways instead of pulling back. Buy when prices breakout above the consolidationpatternon high volume. These observations help us to find the ideal bull flag formations.

• In my experience, the best time to trade the Bull Flag Pattern is when it occurs just after a breakout.
• It won’t always look the same, so expect it to vary from flag to flag.
• That’s followed by a period of consolidation where some traders sell and others start to buy.
• Another variant is called a bullish pennant, in which the consolidation takes the form of a symmetrical triangle.

It’s the time of price consolidation, after which the price continues to move up. A bear flag should resume the downtrend in a stock’s price markdown. The consolidation should look the same, however. In other words, the rally in a bear flag should be higher highs and lows with lower volume — a weak rally. The bull flag pattern is probably one of the first chart patterns you’ve learned. Bull flag patterns are a great setup for new traders to learn because they are easy to spot and trade once you understand the mechanics behind them.

I want to break them down so it’s very clear and you understand exactly what a bull flag is. But that’s not necessarily the case with the bull flag trading pattern. With massive breakout patterns like my favorite, the supernova, it can be hard to get a controlled entry into the trade.