The high volume confirms the breakout and suggests a greater validity and sustainability to the move higher. In a bull flag formation, traders will hope to see high or increasing volume into the flagpole (trend which precedes the flag). The increasing or higher than usual volume accompanying the uptrend (flagpole), suggests an increased buy side enthusiasm for the security in question.
It can contract, it can expand, and produce a lot of false breakouts. Range market is one of the most challenging market conditions to trade. That’s why if you spot a sharp move down after the pole has formed, it will take a while for you to confirm that the sellers have not yet taken over. This post is written by Jet Toyco, a trader and trading coach. Once you have selected the relevant trade pair, click on the Indicators button at the top of the chart and a new window will pop up. Discover the range of markets and learn how they work - with IG Academy's online course.
Pros and Cons of a Bull Flag Pattern
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- It may seem that one can identify flag chart patterns without breaking a sweat, but they are actually quite tricky.
- A bull flag fails or is invalidated once it breaks the low of the breakout candle.
- Day traders may make their entry just several candles after for shorter-term trades, though this comes at a much higher risk of entering on the basis of a false signal.
- In this case, you want to use the 50-period moving average as your trailing stop loss.
- Additionally, they should use sufficient risk management techniques, avoid overtrading and consider market fundamentals to increase their chances of success.
- Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.
Once the consolidation period ends, prices typically resume their upward trend, leading to profits for traders who correctly identified the bull flag pattern. The Bull Flag Pattern is a technical analysis chart pattern that typically occurs in an upward-trending market. The pattern is characterized by a strong and rapid price rise (the "flagpole") followed by a period of consolidation, which forms a rectangular or flag-like shape. This consolidation phase usually occurs in the form of a downward or sideways trend, and is followed by a resumption of the upward trend. The Bull Flag Pattern is a bullish signal that suggests that the asset will likely continue its upward movement. A bull flag pattern consists of a larger bullish candlestick that forms the flag pole.
How to use a bull flag in trading — best strategy
This pattern is named for the resemblance of a flag on a pole. The bull flag is a continuation pattern which only slightly retraces the advance preceding it. The technical buy point is when price penetrates the upper trend line of the flag area, ideally on volume expansion.
The bull flag pattern is named such because of its appearance. And, this appearance makes it a user-friendly, easy-to-identify chart pattern. The bull flag pattern closely resembles the shape of a flag on a pole. The flag can take the shape of a horizontal rectangle and is often angled in a downward position away from the trend. The pattern formed by inverting the bull flag stock pattern is called the bear flag stock pattern. Again, looking at real-world charts and spotting their patterns is important.
How to Use the Bull Flag Pattern
It is important to set a stop-loss order when trading based on the Bull Flag Pattern. This will protect against potential losses if the price does not move in the expected direction. Also, traders can ascertain the bull flag profit target by calculating the price distance between the base of the flagpole and the flag’s highest point. We hope this helps you in your trading journey and education in the markets.
In this example, your target is set for the "resistance" area on the bigger picture chart shown above. Notice the difference between https://www.bigshotrading.info/ the bull flag example above and this pennant example. Both look bullish, but the structure of the pattern is slightly different.
This is typically seen as a signal to buy, as it suggests that the uptrend is likely to continue. A bull flag in crypto has the exact same criteria as in stocks. Look for a demand pole, followed by a tight pullback with lower highs and lower lows, then a breakout to resume the uptrend. 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 means that we set bull flag profit target 70 points from the point of a bullish pennant of the upper border of the consolidation. In the picture above you can see the EURUSD Forex trading pair with clearly visible elements of the bullish flag pattern. The bear flag starts with a significant fall in prices, followed by a period when the price remains between 2 lines. It is thought that the bear flag suggests the price will continue to move downward once it leaves the area between the 2 lines. Volume may increase first and then decrease as the formation reaches the endpoint.
What is a flag pattern?
No pattern will always provide rewards, but they do substantially lower the risk of trading. To buy a pullback using bull flags, it’s a good idea to incorporate another technical analysis tool. If a bullish flag coincides with a Fibonacci retracement level, buying the market may be a good idea. A bull flag chart pattern is seen when a stock is in a strong uptrend.