Flag patterns Bullish and Bearish

You then can set your stop at the lows of that prior candle. 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. 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. A bull flag and a pennant can both resolve in the upward direction.

Also be aware the trading volume tends to drop during the flag or consolidation period as traders buy and sell within a small price range. There are a variety of reasons for the consolidation period. You need to understand them to take advantage of the next big price move. Trading a bull flag pattern can be profitable as long as you know exactly what to look for.

Bull flag and bear flag patterns summed up

This visual is what you see on a stock chart when price rises (and breaks out of a resistance level). This resistance level then becomes a support level (ground level) and moves higher in an up trending manner. A bull flag in crypto has the exact same criteria as in stocks.

Bull Flags can form on any timeframe but occur more frequently on hourly and daily charts. Flags happen quickly and usually last no longer than three weeks. As you can see, the stock was on a strong bull run, when it made a major gap on 31st July 2018.

Benefits and risks of a bull flag pattern

During this consolidation period, the market typically forms a flag, which resembles a rectangle or pennant. The flagpole is formed by the initial price move, and the flag forms as the market consolidate. 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 trading is quite a straightforward process as long as the previous phase – spotting and drawing the formation – is done properly. We use the same GBP/USD daily chart to share simple tips on trading bullish flags. The breakout occurs once the buyers reassume control of the price action after a temporary pause in the uptrend.

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Is a bull flag a continuation or reversal pattern?

It signals that the prevailing vertical trend may be in the process of extending its range. Bull flags are the opposite of bear flags, which form amid a concerted downtrend. The Bullish Flag Pattern is a trend continuation chart pattern.

In this case, we want to enter when we break above the upper flag “border” or above the top of the flag pole. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors.

In a bull flag pattern, the support and resistance trend lines run slightly parallel to each other. This doesn’t mean that the support and resistance lines won’t slope at all. In many cases, one or the other might slope slightly, and in the case of a bull flag pattern, they both might slope down. However, the patterns do not start to converge like you see with triangles, wedges, and pennants. The below chart highlights an upside breakout from a bull flag pattern, which is accompanied by a high-volume bar. The high volume confirms the breakout and suggests a greater validity and sustainability to the move higher.

So, the earlier you are in a bull run or momentum swing, the better your bull flag should perform. Bull flag trading patterns are one of many patterns that traders study in the markets. Trading patterns are a way to simplify the markets and condense information into repeatable, visual formations.

Volume

If the price moves in your favor, then trail your stop loss with the 50-period Moving Average. If a Bull Flag Pattern is formed, then place a buy stop order above the swing high. In such market conditions, there is a lot of “meat” for the trend to continue and the only way to ride it is to trail your stop loss. However, I prefer to trail my stop loss until the market takes me out of the trade.

The pattern occurs in an uptrend wherein a stock pauses for a time, pulls back to some degree, and then resumes the uptrend. Once you know how to spot a bull flag in a chart, you can plot entry and exit points. Identifying which type of bull flag formation is developing will help you better navigate the price action. For all you know, the bull flag pattern is formed in an existing downtrend. On the contrary, technical analysis disregards the EMH and is only interested in the price and volume behavior of the market as a basis for price prediction. A technical analysis pattern called the bull flag is a recognized price pattern and is thought to indicate that a price increase is about to occur.

Notice the difference between the bull flag example above and this pennant example. Both look bullish, but the structure of the pattern is slightly different. For a more detailed tutorial on bear flags, be sure to check out our tutorial here.

Instead of developing parallel lines to form the flag, the lines converge during the consolidation period. As you’d expect, the pennant looks like an elongated triangle with the 2 sides of the pennant equal and meeting at the tip. The formation of both the flag pattern and the pennant may take weeks to form.

The third variation of the bull flag pattern is the bull pennant. Instead of a rectangular outline of the flag, the pennant consolidates the stock in what looks like a triangle with the top line descending and the bottom line ascending. This means that the support and resistance levels will not be trading at equal distance levels but instead converge in a smaller trading window before having a breakout. A bull flag chart pattern is a continuation pattern that occurs in a strong uptrend.

A bull pennant forms as the trading range narrows during the consolidation period. The classic pennant shape appears to slope down from the top and up from the bottom. Occasionally you’ll see pennants with a flat top or flat bottom. It’s not a coincidence that the bullish flag pattern resembles a national flag after all; the name was inspired by the similarities with the national flag. Volume patterns may often be used in conjunction with flag patterns, with the aim of further validating these formations and their assumed outcomes. A flag pattern is highlighted from a strong directional move, followed by a slow counter trend move.

• Also be aware the trading volume tends to drop during the flag or consolidation period as traders buy and sell within a small price range.
• As a result of this, the bullish flag pattern is known as a bullish continuation pattern.
• A bull flag is bullish because it signifies a continuation of a powerful uptrend.
• However, a pennant is different in that it is usually a 50/50 scenario.
• With your areas now plotted, the next thing that you’re looking for is for the price to reach the area of support and make a valid bull flag pattern at it or below it.

Within that range, a bull flag begins to form mid-day, right at the middle of the trading range. 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. As you can see from the image above, the context is everything when comparing a bull flag to a bear flag. That being said, they are both very similar and should be treated almost identically, just in different trending contexts. Notice in this example of symbol AMC, you see a perfect https://trading-market.org/bullish-flag-formation-signaling-a-move-higher/ on the 30-minute chart.

The previous swing high will serve as the initial profit objective for the bullish flag pattern, and the consolidation structure might serve as the stop-loss level. In this case, the consolidation takes a bit more time than usual, but it is not an aggressive correction lower. The price action actually moves more in a sideways fashion, but still with an overall bias lower, as the buyers consolidate their power. Finally, there is a break to the upside, which takes the price action aggressively higher. Overall, both are bullish patterns that facilitate an extension of the uptrend. Yes, high-tight bull flag patterns hold 85 percent of the time, according to decades of research compiled by Tom Bulkowski in his book The Encyclopedia of chart patterns.