07
Apr
2021

Bull Flag Pattern What is a Bull Flag in Stocks?

As we delve into the intricacies of the bull flag pattern, think of it as a crucial element of your trading arsenal, one that suggests the market’s vigor may well carry on. Let’s navigate how recognizing this pattern can steer your decisions in the favorable tides of the stock market. During a range, wait for the price to form a bull flag pattern below resistance.

  • This trade setup assumes another breakout after the consolidation period.
  • The relative strength index (RSI) is another popular technical analysis tool.
  • Depending on the complexity of their search criteria, several stocks may meet the criteria.
  • Recently, we discussed the general history of candlesticks and their patterns in a prior post.
  • Therefore, we are looking to identify an uptrend – the series of the higher highs and higher lows.

Lastly, the trend resumes as volume/demand returns and price breaks to a new 30-minute candle high. 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.

Bull Flags: An Overview

Alternatively, to measure manually, use an arithmetic chart and plot the length of the flag pole. This distance will be the future price target which you should annotate on the chart in the direction of the breakout. Traders should remember that there is still a 15 percent false signal risk. A high tight bull flag is a good reliable bull flag formation pattern with an 85% success rate and a 39% average increase. Do not trade loose bull flags, they have a 55% failure rate, and even if they succeed, they only average a 9% price increase. When a bull flag pattern fails, the stock price fails to achieve the price target or reverses before reaching the height of the flag pole.

While the trading could create a ‘W’, that may not always be the case. The top and bottom lines of the flag have a parallel downward trend until the stock sees a breakout to the upside. This is probably the most common variant of the bull flag pattern.

The Psychology of Bull Flag Patterns

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses. The bull flag pattern is like a gift that keeps on giving. Human nature hasn’t changed a whole lot over the centuries. We have the same needs, wants and desires as our ancestors.

Flag (Channel)

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Additionally, traders may be able to identify the target price before entering the trade, allowing them to manage their position better. When trading a bull flag chart pattern, be prepared to trade in the direction of the price breakout. Generally speaking, waiting for at least three consecutive candles before entering the trade is important. After identifying the high-tight bull flag, look for a trend confirmation by watching for a price breakout up out of the bull flag.

While the lines are sloping down, they should remain relatively parallel to each other. 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. The consolidation happens over three days and the trading range narrows along the way.

How To Find The Best Bull Flag Patterns On A Chart

The pattern is confirmed when the price breaks out of the handle’s resistance line. The pattern is confirmed when the price breaks out above the resistance line. Once again, you can use a volume indicator for additional confirmation.

But as with the bull flag, wait for the volume to spike again with the next leg of the rally. If you draw trend lines around it, it looks like a rectangle. The sideways consolidation tends to be more bullish than a bull flag … It doesn’t pull back as much. With a bear flag, there’s a strong drop in price on large volume. That’s followed by a small peak and consolidation on low volume. After the initial run, the stock pulls back and consolidates on lower volume.

The flag typically takes the shape of a rectangle, and the consolidation period can last anywhere from a few days to several weeks. A breakout from a bull flag pattern often results in a continuation of the previous uptrend. The strategy is that the height of the flagpole provides a target for the ensuing price movement. The main benefit of trading bull flag patterns is that they can be more reliable. As long as you time your entry points correctly and set a mental stop loss for your trade, you have a greater chance of taking advantage of this pattern. This stock formed a pair of bull flag patterns during its uptrend.

FinViz offers a range of pre-defined filters and sorting options, enabling traders to quickly narrow their search by sector, industry, market capitalization, and more. After selecting the desired criteria, traders can apply the filter to the Finviz screener. According to an analysis of 1,028 trades, only one bull flag pattern has a success rate of 85%, while the rest have a failure rate of 55%.

It’s interesting to note that when you look at this in different time frames the pennant isn’t as obvious. 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.

Candlestick Stocks: What Makes Candlestick Charts So Great?

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. Ideally, volume declines during the flag’s formation, suggesting consolidation, and increases sharply on a breakout, suggesting a strong likelihood of trend continuation.

In late 2019, AAPL experienced a sharp increase in price, followed by a consolidation period that lasted for about two months. During this period, the stock traded in a narrow range, forming a bull flag pattern. Once the consolidation period ended, the stock broke out of the upper trendline of the flag and resumed its upward trend.

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