What Is a Bull Flag Pattern and How to Trade Them?

Using the second trendline stop-loss may be more costly but it avoids wiggles at the first trendline from triggering premature stops. To offset some of the risk, lighter shares can be used when trailing the second trendline stop-loss. The bear flag is an upside down version of the bull flat. It has the same structure as the bull flag but inverted. The flagpole forms on an almost vertical panic price drop as bulls get blindsided from the sellers, then a bounce that has parallel upper and lower trendlines, which form the flag. A Bull Flag Pattern aids in locating the places that require correction before the prior trend resumes.

The information contained on this website is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You must review and agree to our Disclaimers and Terms and Conditions before using this site. It means that you need to identify range markets and spot where their support and resistance are. With that said, the bull flag pattern consists of two parts.

Further Reading on forex trading patterns

The reliability of the bull flag pattern depends on the success of the checklist mentioned above. When all components of the bull flag are identified and present within the chart, the bull flag pattern is considered to be a formidable pattern to trade. A bullish pennant formation also follows a steep rise in the underlying asset price but may have converging trendlines when consolidating. The narrow trading range may become smaller and shaped like a triangle. Buying the breakout means that traders will enter long positions when the price breaks out above the resistance level.

Later in the morning, you might see a better formation on the 5-minute chart. Or, like our AMC example, you might see a clean setup on the 30-minute chart. You should notice that the uptrend should be rather sharp and accompanied by strong volume. Into the pullback, you’ll want to see a series of lower highs and lower lows. There may be more than just a couple of retracements and recoveries with lower highs and lower lows before a breakout continuing the uptrend occurs.

Bull Flag: Definition, Pattern, Examples, and Strategies

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• Over longer periods, the pattern becomes a rectangle or triangle.
• Bullish and bearish flags are both strong continuation flag patterns.
• After you buy the breakout, you then set your stop below the breakout candle.
• In the picture above you can see the EURUSD Forex trading pair with clearly visible elements of the bullish flag pattern.
• In addition, it is easy to confuse it with other technical analysis patterns.

The bull flag pattern and its variations are one of the most common and reliable. A bull flag fails or is invalidated once it breaks the low of the breakout candle. This sounds very simple, but it takes a trained eye to really see the quality of the bull flag. As a breakout strategy, you want to make sure that you respect your stops and analyze the price and volume well.

Understanding the Bull Flag Pattern

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The bull flag pattern is built around human psychology. Once you see and understand the bull flag pattern, you can take advantage of it because human nature drives it. In my Challenge, you’ll learn other strategies like gap trading strategy.