Bull Flag And Bear Flag Pattern

Your exit target is the length of the flagpole added to the bottom of the flag. Many traders are convinced their trade has to work — they don’t include an exit in their trading plan. Sometimes a bull flag won’t work out as you want or expect. A line connects the peaks of all the rally candles that form the flagpole.

Effectively, after the price broke the swing low, the downtrend continued to the next level of support, the blue line. The confirmation phase – a breakout is confirmed by price closing above the upper resistance line and sustained follow-through buying above the flag. In this case, after a lower high is made, a line for a downtrend channel can be drawn, and we can be ready for the break of the flag if it occurs. So, this chart pattern must have a previous momentum that usually is represented by consecutive bullish bars to the upside. Above, we mentioned the Volume indicator that can confirm the continuation of the upward trend and the bull flag’s effectiveness. Although the bull flag seems simple, we have some tips to highlight that will help you trade the pattern without problems.

But Wait!  I Read That Bull Flags Are Different Than A Regular Pullback

Bull is used to describe an upward trend in a stock or index. If a stock is bullish, that means its price is going up. If the price breaks above the swing high, go long with stop loss 1 ATR below the low of the Bull Flag. If the price breaks out of a range, then wait for a Bull Flag Pattern to form. Most of the time, you can expect a Flag Pattern to form after a breakout or during a strong trend. Well, it’s a term I coined when the market breaks out of a range and then does a pullback for the first time.

Eventually the price should spike up through the upper trend line triggering shorts to cover and buyers to come off the fence. When the price exceeds the highest high, the bull flag is formed as buyers rush in making new highs and the next leg of the up trend resumes. Once you entry a flag pattern, the targets can be derived Bull Flag Chart Pattern from many indicators. The initial targets on all flag patterns will be the high or low of the flagpole. If the flagpole price peak is exceeded, then you can use Bollinger Bands and or fib price levels. To get fib price level targets, first plot the high to low and low back to high price levels of the flagpole.

How To Identify The Bullish Pattern?

In both cases, though, the potential of the patterns is the same. In the green circle, you see the moment when the price action broke through the upper level of the Flag. This confirmed the pattern, which creates a long opportunity on the chart. The green circle is the appropriate time in which to buy the GBP/USD Forex pair. Notice the bullish Flag pattern starts with a bullish Flag Pole, which turns into a bearish correction.

A stop-loss is set just outside the flag on the opposite side of the breakout. For the stock market traders, this will mean one penny ($0.01) or more, in the forex market, one or or more pips, in the futures market, one or more ticks. Note that if the parallel lines of the flag are sloping, then the breakout point will change over time because the lines slope over time. The formation of the flag is a repeatable pattern in any liquid market and on every time frame. If day trading for a living is your goal, you can implement trading the flag after you test it and work out your trading plan.

Ascending Triangles Give A Bullish Sign

Identifying patterns in the market can be useful, because they can sometimes indicate where and when price may be likely to move. StocksToTrade in no way warrants the solvency, financial condition, or investment advisability ofany of the securities mentioned in communications or websites. In addition,StocksToTrade accepts no liability whatsoever for any direct or consequential loss arising from any useof this information.

The sideways consolidation tends to be more bullish than a bull flag … It doesn’t pull back as much. In this guide, we’ve defined the bull flag pattern broadly. This approach covers generic multi-legged pullbacks.

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The figure starts with a bearish trend impulse and turns into a correction, which is directed upwards. During the correction phase, the tops and the bottoms are evenly distributed, creating a parallel channel. The first component of the Flag chart pattern is the Flag Pole. Every trending move could transition into a Flag, which brings us to the statement that every trend impulse could appear to be a flag pole. The cryptocurrencies provide the opportunity to find bullish and bearish flags. Mainly because it is a market with high volatility where opportunities to trade long or short are presented almost daily, depending on the time frame of execution.

• If you buy too early, you can end up in a bad spot.
• This confirms the pattern and increases the likelihood that the breakout will be successful.
• After price begins to move lower again, we can then find the final component needed for trading a bearish flag pattern.
• Notice how the stock broke out of the consolidation period ?
• The more confident you are of the bullish bias, the more likely you would trade a bull flag breakout.
• The two-other trailing stop loss orders are shown with S/L 2 and S/L 3.
• A bull flag pattern is a chart pattern that occurs when a stock is in a strong uptrend.

More details about the trading execution are presented in the next headline. The Stop Loss can be placed below the bottom line of the bull flag. Thus, the take profit order can be too far in the highly liquid market. The pattern can be applied not only to the Forex market but to stock, cryptocurrencies, commodities, etc. During the pause or the narrow consolidation, people wait to get a higher price so they can sell.

What Is The Bull Flag Pattern?

The bear flag pattern on the other hand works with a bear market. It is the opposite of the bull flag pattern and is a continuation of a bearish market. The bear flag is composed of a pole which represents a sharp price drop followed by a short consolidation having how to understand stock charts a narrow price range usually having higher lows. To summarize, the bull flag pattern is relatively regular in its occurrence. It signals the presence of a strong uptrend, and the break of the flag structure offers the best entry to maximize the risk-reward ratio.

This should give you a basic understanding of how the bullish flag formation works. Now, there is a pattern that goes hand in hand with this setup. Yes, that’s a typical bull flag formation pattern I described earlier. However, when it comes to the markets, you won’t always see “textbook” bull flag patterns. Traders of a bull flag might wait for the price to break above the resistance of the consolidation to find long entry into the market.

Bear Flag Pattern Strategy

A chart is worth a thousand words, so it’s super helpful to view examples of these setups in action. 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. And when you decide to exit there, make sure to follow through.

While all chart patterns are susceptible to false moves, bull flags are among the most reliable and effective patterns. The first target is based on the distance between the parallel lines, which form the flag. If the flag is 30 pips wide , then the profit target is the breakout price +/- 30 pips depending on if the breakout was to the upside or downside, respectively. Because the market is tightly wound after a strong move, these profit targets are often hit quickly and exceeded. I will get to how to trade the bull flag later but first, let’s take a look at what a bull flag chart pattern looks like.

Bull Flag And Bear Flag Chart Patterns Explained

Lock in those singles and remember to sell into strength. If a Bull Flag Pattern is formed, then place a buy stop order above the swing high. Now that you’ve learned what is a Bull Flag pattern and how to Bull Flag Chart Pattern trade it. Whatever the case is, this is a sign of strength and the market could breakout higher. So, if you see a steep pullback with large range of candles, then it’s probably not a Bull Flag Pattern.

BY Amy Danise