In a downtrend a bear flag will highlight a slow consolidation higher after an aggressive move lower. This suggests more selling enthusiasm on the move down than on the move up and alludes to the momentum as remaining negative for the security in question. 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. Some bull flags are compact, displaying minimal price fluctuations and suggesting a market that is tightly coiled.

And after the fakeout, it fizzled out and cracked under the stop. While conditions weren’t perfect for this setup, we’ve seen similar stocks have massive short squeezes recently. The flagpole gave a target of under 60 cents, which would have been eventually reached at the end of the day as the stock slowly faded. Many traders are convinced their trade has to work — they don’t include an exit in their trading plan.

Sometimes, they’re messy, and bull flags can take several forms. This is an example of a bull flag formation in the premarket on a 4-hour chart of $AAPL. The flag formation was https://g-markets.net/ set up perfectly for the opening bell. Once the price broke out of the flag at open, you would have taken a long position and used a candle close below the flag as a stop.

The breakout suggests the trend which preceded its formation is now being continued.
It allows you to spot a continuation of positive price action, which, in turn, lets you make a lot of profit.
Trading contains substantial risk and is not for every investor.
A common characteristic of bull flags is the typical volume pattern.

After a period of consolidation, the flag must resume the upward trend in order to be considered a bullish flag pattern. Otherwise, the pattern fails, which we’ll discuss later in the post. This resumption should be accompanied by the presence of renewed volume (demand). Flag patterns are considered to be among the most reliable continuation patterns that traders use because they generate a setup for entering an existing trend that is ready to continue. Flag formations are all quite similar when they appear and tend to also show up in similar situations in an existing trend. Let’s evaluate how much the initial rally of the price lasted before the downward consolidation.

Bull flag pattern example on the Forex market

In conclusion, the bull flag pattern is a powerful tool for traders looking to profit from bullish trends in the market. By combining the bull flag pattern with other technical indicators and risk management strategies, traders can develop effective trading plans and increase their chances of success in the market. In contrast, the bear flag pattern is formed when the price consolidates after a sharp price decrease, also forming a flag-like pattern. The price action during the consolidation phase is characterized by lower trading volumes and a range-bound price movement. Unlike a bullish flag, in a bearish flag pattern, the volume does not always decline during the consolidation. The reason for this is that bearish, downward trending price moves are usually driven by investor fear and anxiety over falling prices.

Volume may increase first and then decrease as the formation reaches the endpoint. There may be an uptick in volume during the breakout, although it may be minimal. The trend ends with the price moving in the same direction as the breakout. As we mentioned above, you want a bull flag to put in a series of lower highs so that you can buy the breakout of the most recent candle’s lower high.

What is a Bear trap in trading and how to handle it

The drama of the chart escalates as AMZN’s price vaults over the flag’s upper boundary, propelled by a resurgence in volume. This breakout is the market’s cue—a call to action for investors. Bull flags and bear flags can serve as valuable tools in technical analysis to determine target prices in trending markets. However, they do not guarantee the projected return, as false breakouts can occur.

People come here to learn, hang out, practice, trade stocks, and more. Our trade rooms are a great place to get live group mentoring and training. Our chat rooms will provide you with an opportunity to learn how to trade stocks, options, and futures. You’ll see how other members are doing it, share charts, share ideas and gain knowledge. Bull flags can be found on any time frame you use for trading. Coupling them with moving averages like the 9 and 20 exponential moving averages gives you a pretty good formula for trading.

It’s then followed by at least three smaller consolidation candles, forming the flag. You will see many bull flag patterns that consolidate near support levels than when support holds; price action breaks out of the flag. The bull flag pattern is one of the most common patterns on charts. Bullish 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.

After you buy the breakout, you then set your stop below the breakout candle. In this example, your target is set for the “resistance” area on the bigger picture chart shown above. In a hot market, a flat top breakout is worth a shot … as long as you remember to cut those losses. The short sell entry was around 70 cents when the volume started to come back. The stop would’ve been at 75 cents, just above the pennant. Sometimes a bull flag won’t work out as you want or expect.

The flag, which represents a consolidation and slow pullback from the uptrend, should ideally have low or declining volume into its formation. This shows less buying enthusiasm into the counter trend move. The initial rally comes to an end through some profit-taking and price forms a tight range making slightly lower lows and lower highs. The flagpole forms on an almost vertical price spike as sellers get blindsided from the buyers, then a pullback that has parallel upper and lower trendlines, which form the flag.

What is a bull flag?

This rebate will be deducted from your cost to place the trade and will be reflected on your trade confirmation. Order flow rebates are not available for non-options transactions. To learn more, see our Fee Schedule, Order Flow Rebate FAQ, and Order Flow Rebate Program Terms & Conditions. Although these are key points to pay attention to, it’s also important to consider overall trends in the market to be sure you don’t misinterpret the signals. The point of the strategy is to identify the optimal entry point with the help of a pending buy order. You can close the position based on the length of the flagpole.

Flags vs. Pennants

The target for the bull flag is the pole height percentage rise added to the breakout point. A bull flag breakout happens when a large bullish candlestick forms a flag pole with consolidation candles that pull back near support levels. When a bullish candlestick breaks above the consolidation of a flag, a potential breakout occurs. Ideally, you’d like to see the price continue and break above the top of the flag pole. Cantel Medical Corp.’s price chart is an example that appears to have broken out from a bull flag pattern.

The most important factor in identifying any flag pattern is the clear “staff” or “flagpole”; there should be a straight run upwards leading up to the pattern or it is not a valid pattern. After the straight run can you trade forex with $100 upward price starts to Zig Zag between two converging trendlines forming… 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.

Market and economic views are subject to change without notice and may be untimely when presented here. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. Historical or hypothetical performance results are presented for illustrative purposes only. Another pattern that resembles the bullish flag pattern is called a pennant.