Bullish Flag Formation Signaling A Move Higher

https://trading-market.org/ flag formations are found in stocks with strong uptrends and are considered good continuation patterns. They are called bull flags because the pattern resembles a flag on a pole. The pole is the result of a vertical rise in a stock and the flag results from a period of consolidation.

Notice that both lengths are applied starting from the breakout level of the pattern. The next target of the Flag formation equals the size of the Flag Pole. So, to get this target 2, you need to measure the vertical distance between the high and the low of the Pole. The bull flag rises, dips, and consolidates before continuing to move up. Sign up for my free watchlist to learn my process behind watching stocks. With this pattern, buying the breakout is the easy part.

If you have a bearish flag, then you would sell the pair when you see a candle closing below the lower level of the pattern. Most times, after the Flag completes the two targets, you would want to close out the entire position and bank your profits. But in some instances, you may decide to keep a small position open to ride out a larger trend move. So, if you continue to see signs of a strong trend even after Target 2 has been reached, then by all means, keep a portion of the position open. Make sure to manage your trade using price action based clues to determine a final exit point. Identify the flag pole, which is the preceding sharp upturn that is typically complemented by increased volume as traders respond to the price movement.

Pros of using the bullish flag

The best bullish flags chart apps support a wide range of technical analysis features like charts, pattern recognition and drawing tools. Flags are continuation patterns that allow traders and investors to perform technical analysis on an underlying stock/asset to make sound financial decisions. These patterns form when the price of a stock or asset moves counter in the short-term from the predominant long-term trend. Flag patterns are used to forecast the continuation of the short-term trend from a point in which the price has consolidated.

A measured move target can be obtained by measuring the distance of the pole and adding it to the apex of the pennant triangle. Once a stock breaks out above the handle, a technical analyst would buy the stock. Sign up for our newsletter to get the inside scoop on what traders are talking about — delivered daily to your inbox. These two predictable emotions help create predictable trading patterns that technical analysts try to capitalize on. Traditionally the move out of the flag is thought to be potentially as big in magnitude as the uptrend before the flag begins.

As a result, the price enters a consolidation phase, forming the flag. During this phase, the price may move sideways or slightly downward within a parallel channel, reflecting a period of indecision and balance between buyers and sellers. The final step in identifying a Bullish Flag Pattern is to wait for the price to break above the upper trendline of the flag formation. Wait for clear confirmation of the breakout, ideally with a surge in volume and a strong upward price movement. This breakout signifies the continuation of the uptrend, providing a potential entry point for a long position.

This flag is right at the top of the flagpole, and the following breakout is beautiful. In this example, the flag forms a small pointy triangle on top of the flagpole. You can go back to the VYST chart we reviewed earlier. When trading a bull flag I prefer to wait for confirmation that the flag is complete. Last, you know it’s a bull flag when you see a breakout after the first spike and consolidation.

What Are the Key Differences Between Bull Flag and Bear Flag Patterns?

In this article we look at how to trade these opportunities. It’s not uncommon to see the term “pennant” whenever there’s mention of flag patterns. Pennants are identical to flags in that they’re characterized by converging lines during a consolidation, after which a large price movement occurs followed by a continuation. The only difference is that the consolidation of a pennant pattern features converging rather than parallel trend lines. Another disadvantage is simply the disadvantage common to all chart patterns – the possibility of the pattern generating a false trading signal. Once you entry a flag pattern, the targets can be derived from many indicators.

It’s common for the flag to trend downward — against the trend — before the next upward push. If you’ve been following me for any length of time, you know I love to trade based on patterns. You will automatically start receiving daily market analysis, trade ideas, and blog updates. We definitely do not want to sell the full position until there is either a break below the 10-day EMA, or some sort of climatic move to sell into strength–whichever comes first. We finally entered our last part of the position on the breakout above the September high ($349).

• Any action taken by the reader based on this information is strictly at their own risk.
• With this strategy, your technical analysis skills will be tested.
• In a bearish flag pattern, volume doesn’t always decline during consolidation as it does in bullish patterns.
• The breakout occurs once the buyers reassume control of the price action after a temporary pause in the uptrend.
• 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.

Rayner Teo is an independent trader, ex-prop trader, and founder of TradingwithRayner. Now since this is a trend reversal strategy, you’d want to look for downtrends. Meaning, how you manage your trade makes all the difference, not how you enter. The entry trigger rules are the same for the strategies that I’m about to show you because entries only play a small part in the equation.

Print these charts out or keep them in a digital journal where you can refer to them often. It’s easy to spot them in hindsight but much harder in the moment. Last, you’ll see an end to the selling and the buyers will take charge once again. The more trading sessions that are engulfed by a single candlestick, the stronger the signal.

Bull Flag Pattern Trading

Support levels at the bottom may ascend to create a triangle which we have already established as a pennant. The flat-top breakout tends to be a favorite amongst traders since it doesn’t pose any substantial pullback in the price trend. It indicates that both buyers and sellers have met and agreed on the key resistance level. The below Mastercard chart shows a bullish flag pattern where the uptrend begins near $288 and trends upward to $314 to create the ‘pole’ of the chart pattern.

The sharper the spike on the flagpole, the more powerful the bull flag can be. In this report, we will look at a price action that is known as a bull flag that traders use to identify points to enter trade. We will look at what a bullish flag is, its difference with bearish flag, and its examples. As mentioned earlier, the bull flag is a continuation pattern. Therefore, we are looking to identify an uptrend – the series of the higher highs and higher lows. The second step in spotting the bull flag pattern is monitoring the shape of the correction.

Graphical representation of a bearish flag

Typically, the key levels to watch in this case are the upper and lower sides of the pennant. At times, the price of an asset will move sharply upwards. This could be because of a major news event like better earnings forecast or a rate hike by the Federal Reserve. If the price breaks above the swing high, go long with stop loss 1 ATR below the low of the Bull Flag.

Note the strong rise in the stock as it forms the flag pole, and the tight consolidation that follows. Bulls are not waiting for better prices and are buying every chance they get. To trade a flag pattern, wait for the price to break out of the consolidation period in the direction of the trend, and enter a long or short position accordingly. Set a stop loss below the low of the consolidation period and take profit at the target price.

The Bull Flag Pattern usually appears in a strong trending market, or just after it breaks out of a range. If you wait for a close above the highs, you reduce the chance of a false breakout. But, if the breakout is strong, you end up entering at a much higher price. 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.

In this example, both the aggressive and conservative entry methods would have reached their targets. This Bullish log chart for BTC shows a clear cup and handle Yet these could be acting as a quasi-bullflag, flagpole at the same time. Both experience an upward move initially (cup, flag-pole) and further consolidation period Both are bullish but experience a similar development as bullish tools.

The steep and vertical nature of the flagpole in a high tight flag pattern requires a strong and sustained increase in stock price, which is not always seen in the market. Additionally, the small and tight trading range that forms the flag also requires a high level of momentum and volatility to maintain. The initial uptrend and the formation of the flagpole signal a period of strong bullish sentiment in the market, with buyers dominating and driving the price higher.

I love continuation patterns because you can rely on them. If you don’t get the right entry the first time around, you can usually go after it again when the stock begins to rally for a second time. Continuation patterns like the bull flag can repeat the pattern — hence the name. The stock could give a false signal in the pennant or flag, and then fail to rally again. All bull pennant flags are bull flags … but not all bulls flags are pennant flags. The support and resistance lines dip for the length of the flag before shooting up in a breakout through resistance.

Any active trading strategy will result in higher trading costs than a strategy that involves fewer transactions. DTTW™ is proud to be the lead sponsor of TraderTV.LIVE™, the fastest-growing day trading channel on YouTube. As you can see, the stock was on a strong bull run, when it made a major gap on 31st July 2018.

How to spot a bull flag pattern

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. Thebull flagpattern is a continuation chart pattern that facilitates an extension of the uptrend.

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So, a bull flag pattern is characterized by an initial sharp rally and then by a period of consolidation. With most bull flag patterns, the volume increases when the pole is being formed, then drops during the period of consolidation. Though the following breakout does not always feature a high surge in volume, an increase in volume can show that there has been an influx of new buyers. A bullish flag pattern creates a downward sloping channel formed by a series of lower highs and lower lows.

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• High tight flags are considered to be less common than other chart patterns.
• The first entry is an early entry that allows the trader to capitalize on an initial move back to the high of the flagpole before the stock rejects or breaks out.
• Here’s where you can expect a potential Bear Flag to form as the market does a pullback.
• Another important consideration would be candlestick signals and the chart patterns.

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