How To Trade Bull And Bear Flag Patterns

How To Trade Bull And Bear Flag Patterns

Table of Contents

It is important to note that these patterns work the same in reverse and are known as bear flags and pennants. Bull flags have been rare over the last few months of 2008, but they have been beginning to surface in conjunction with the recent market rally. The bear flag pattern on the other hand works with a bear market.

Once the trade is executed, you should put your initial stop loss right below the lowest point of the flag as shown on the image (S/L 1). Then with each target the Stop Loss order should be moved upwards, locking in profits as price advances. The two-other trailing stop loss orders are shown with S/L 2 and S/L 3. Also, you would adjust your stop loss order by raising it just below the initial target level. Then if the price continues to increase and reaches your second target level, you can close another 1/3 of the position to lock in your profits further. Now on your remaining trade, you adjust your stop again so that it will be located just below the second target.

How To Trade The Flag Chart Pattern

This should not only give the fib retracement levels but also the fib extension levels. There are three potential price target levels indicated by 1.27, 1.414 and 1.618 fib extensions, which each double as a potential price reversal zone .

The market must be above the 20-period exponential moving average . Get $25,000 of virtual funds and prove your skills in real market conditions.

So you can apply the same concepts to identify bear flags. For clarity and ease of understanding, this trading guide focuses on bull flags. This is why price patterns and entry points are not the only determinants of your trading performance. What is critical is how your entire trading plan comes together. Here, if you had traded both bull flag breakouts with sound risk management, you could still end up in the green.

A bull flag pattern is a chart pattern that occurs when a stock is in a strong uptrend. It is called a flag pattern because when you see it on a chart it looks like a flag on a pole and since we are in an uptrend it is considered a bullish flag.

The Forex Flag pattern is one of the best-known continuation formations in trading. It is an on-chart figure, which typically appears as a minor consolidation between impulsive legs of a trend. When this pattern forms on the chart, there is a high likelihood that the price action will breakout in the direction of the prevailing trend.

Charted: Cardano (ada) Corrects Gains, Why It Could Rally Again To $1 5

The point is, no pattern will look perfect and much like clouds in the sky, you may see a figure that I don’t see. Let’s not get bogged down in the details of each pattern. I look at them as pauses in current price direction and am looking to get involved either prior to the resolution or just as it is started. Business address, 200 West Jackson Blvd., Suite 1450, Chicago, IL 60606. IG is a registered RFED and IB with the Commodities Futures Trading Commission and member of the National Futures Association . Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors.

How To Trade Bull And Bear Flag Patterns

This way the market did not manage to move to the downside twice, therefore, it will probably go up. In a downtrend, the two pullbacks create a Double Top Bear Flag. To find the breakout point, look closely at the securities trading volume.

Look for price move out of flag to confirm bullish breakout. Watch our video on how to identify and trade bull flag patterns. In this example of a bullish flag pattern, the price action rises during the initial trend move and then declines through the consolidation area. The bull flag pattern is the best addition to any trader’s toolbox. It has a simple way to enter on breakouts with lower risk.

Bull Flag & Bear Flag Pattern Trading Strategy Guide

Bull flags form after a price spike that peaks out and slowly forms a short-term reversion downtrend. The starting points for the trend lines should connect the highest highs and the highest lows to represent the flag portion. 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 traditional expectation for a bullish flag is for the price to break above the flag’s formation and continue moving upward. More often than not, a flag will retrace no more than 50% of its previous movement.

A double bottom bull flag, in any case, provides a good opportunity for at least a scalp trade. A bear flag provides a trader with the opportunity to go short using a stop order to sell at one tick below the low price of the bar, which formed the second top.

As you can see, the stock was on a strong bull run, when it made a major gap on 31st July 2018. Second, it has a consolidation phase, as bulls and bears battle it out. In most cases, this usually happens during a period of low volume. There are slight variations of the pattern — like the flat top breakout and pennant. So it’s important to decide if you want to learn to trade those as well. 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.

Flag Pattern Trade Entry

When you decide to exit there makes sure to follow. Your exit target is the length of the flagpole that is added to the bottom of the flag.

How To Trade Bull And Bear Flag Patterns

As you see, the price reverses afterward, which would have created unpleasant conditions for the long trade. This is the hourly chart of the GBP/USD Forex pair.

Although the market fell after the entry, the initial downswing did not hit our stop-loss. This second bull flag pattern had a different form. It was a sharper pullback and is made up of fewer bars. Nonetheless, it also met our bull flag identification guidelines. Here is a BTCUSD example showing two instances of the bull flag chart pattern. The take profit is measured by simply copy-pasting the flagpole from a point where the breakout took place. Some traders prefer to use the starting point to copy-paste the trend line where the breakout move initially started i.e. within the body of the flag.

All information is intended for Educational Purposes Only. Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones financial security or life style.

How To Limit Risk And Take Profit For Pullback Trading Strategies

When the price pauses its downward march, the increasing volume may not decline, but rather hold at a level, implying a pause in the anxiety levels. Because volume levels are already elevated, the downward breakout may not be as pronounced as in the upward breakout in a bullish pattern. 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. The further prices fall, the greater the urgency remaining investors feel to take action.

It can be a simple way to enter on breakouts with lower risk. Using the bull flag pattern and its variations can help you trade smarter. But remember to use it in combination with other indicators. A chart is worth a thousand words, so it’s super helpful to view examples of these setups in action. There are a few variations on the classic bull flag pattern. They all feature strong momentum followed by a consolidation period.

What Is A Flag Pattern?

To succeed in trading with flags or pennant chart patterns, it’s wise to always use volume as a guide to making a decision on your entry and exit point of a target price. That’s because it’ll help you to confirm the breakouts and to speculate the momentum after it. In short, the main purpose of the bull flag pattern is to help you participate in the current momentum of the market. That means you can leverage the information it provides to determine the entry levels where the risk is low as compared to the possible reward. From the visual perspective, this pattern has a previous strong movement to the upside and then a consolidation that takes the form of a flag. The flag pattern is encompassed by two parallel lines. These lines can be either flat or pointed in the opposite direction of the primary market trend.

What does a flag pattern mean?

A flag pattern, in technical analysis, is a price chart characterized by a sharp countertrend (the flag) succeeding a short-lived trend (the flag pole). Flag patterns signify trend reversals or breakouts after a period of consolidation.

We shift the first flagpole to the bottom of our flag to estimate the target. That’s followed by a consolidation period where volume drops off substantially and the stock pulls back. Your exit target is the length of the flagpole added to the bottom of the flag. Many traders are convinced their trade has to work — they don’t include an exit in their trading plan. Once large volume comes back and starts pushing the stock further down, that could be the time to short sell. Ideally, you pair this with another technical or fundamental indicator — like the first red day after a runup or news of an offering.

There are some variations of the patterns like the flat top breakout and pennant and use intraday. The simple bull flag guidelines will give a wide range of continuation patterns. Hence, they provide plenty of opportunities for close analysis. The key to trading any pattern is to learn how to manage your risk.

Bull Flag Vs Bullish Pennant

Once price breaks above the last smaller consolidation candle take entry at break of high. If you’re relying on one pattern to tell the story, you’ll find trading to be difficult. That’s why it’s so important to be able to see patterns within patterns. When you see that pattern, you know another strong move up is coming.

Mary Davis
My name is Mary Davis. I am successful broker. I want to share my experience with you through tutorials and webinars. For any questions of interest, please contact us by e-mail: [email protected]. +1 973-709-5130


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