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Bull Flag and Bear Flag Chart Patterns Explained

flagpole
formation

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. While both are generally acceptable, we advise you to use the breakout point to copy-paste the flagpole. As a general rule, the consolidation phase shouldn’t surpass the 50% Fibonacci retracement of the prior leg higher . A pullback that extends below 50% signals that the uptrend is not as strong as it should be.

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Although flags are very simple classical chart patterns, they provide an extremely accurate prediction of the next price movement. Therefore, the bull flag pattern tends to be highly accurate. 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.

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Another scenario that fuels bull flags are short squeezes. If you can identify key levels on a chart where shorts could be underwater, then see a bull flag form, it could be indicative of a coming squeeze. We discuss this strategy in detail in our post on liquidity traps. Bullish flags are present in all markets in all time frames. Forex traders interpret the formation to signal that a currency pair may be headed higher.

Use a channel, parallel lines, or separate horizontal lines to draw the flag. Discover the range of markets and learn how they work – with IG Academy’s online course. Recognize upward movement, a momentum that can be framed under a string of up-trending bars with hardly any retracement bars. Learn how to trade forex in a fun and easy-to-understand format.

Bull flag vs Bear flag

It is possible to draw a credible counter-trendline along the top of the bull flag. HPQ provides an example of a flag that forms after a sharp and sudden advance. SpeedTrader provides information about, or links to websites of, third party providers of research, tools and information that may be of interest or use to the reader. SpeedTrader receives compensation from some of these third parties for placement of hyperlinks, and/or in connection with customers’ use of the third party’s services. SpeedTrader does not supervise the third parties, and does not prepare, verify or endorse the information or services they provide. SpeedTrader is not responsible for the products, services and policies of any third party.

The pullback must form at least one swing high on its way down. All investing involves risk, including loss of principal invested. Past performance of a security or strategy does not guarantee future results or success. The stop loss can be placed below the bottom line of the bull flag. Thus, the Take-Profit order can be too far in the highly liquid market. Place stop loss below the bottom line (the distance of 3-10 pips depending on the timeframe is highly recommended).

A https://trading-market.org/ flag appears like an upright flag on a price chart, with a rectangular price pattern marking the flag itself. Joey Fundora has 17+ years of experience as an independent stock trader, specializing in discretionary swing trading through technical analysis. Crypto analyst Ali has spotted an interesting pattern on the Aptos/USD daily chart. He notes that Aptos has formed a bull flag on its daily chart. Nothing in trading is guaranteed but if you can learn how to identify this setup and use conservative risk management rules you can make money trading this pattern. The bull flag strategy in this tutorial is similar to Al Brook’s two-legged pullback approach.

The cryptocurrency has formed the pole after a robust rise in relative volume. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey.

trend lines

A pennant is a symmetrical triangle that is formed in a horizontal consolidation pattern. As the pennant narrows into its apex, it can be difficult to determine which direction it will resolve. A bull flag doesn’t typically form an apex, nor is it completely symmetrical. A bull flag will most often have a downward trajectory instead of a horizontal and level consolidation.

How to Plan a Trade Using Flag Patterns

When the resistance level is broken, open a buy trade. You need to draw resistance and support lines through four points. Then a range forms from additional high and low points below the previous ones.

  • Unlock our free video lessons and you will learn the exact chart patterns you need to know to find opportunities in the markets.
  • Tomiwabold earned his degree at the University of Lagos.
  • A breakout strategy aims to capitalize on a sudden, definitive move in price action.
  • Both look bullish, but the structure of the pattern is slightly different.

Just like the bull flag, the severity of the drop on the flagpole determines how strong the bear flag can be. When the price consolidates, the Volume indicator is expected to decrease as bulls aren’t strong anymore. Simultaneously, the upward breakout of the flag’s resistance will signal the strength of bulls, so the trading volumes should increase. To validate the formation of the bull flag in your trading, you can use the Volume indicator. The bull flag is a chart pattern formed within a sharp upside movement. A bull flag also indicates that demand is stronger than supply.

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The bear flag is an upside-down version of the bull flag. Determine significant support and resistance levels with the help of pivot points. The length of the exit line from a downward consolidation phase is proportionate to the length of the flagpole. To set stop loss and take profit correctly, you should stop looking for the pattern on different time periods. Pick the one timeframe on which the pattern is clearly defined.

  • If the price moves in your favor, then trail your stop loss with the 50-period Moving Average.
  • If you’re just getting used to the bullish flag pattern, just zoom out a little bit on your chart because it can make a really big difference.
  • This shows less buying enthusiasm into the counter trend move.
  • It signals that the prevailing vertical trend may be in the process of extending its range.

The bull flag isn’t a difficult pattern that can occur at any time and for any asset. It provides a signal of the uptrend’s continuation. Here are some steps to help you determine the bull flag pattern.

Here’s where you can expect a potential Bull Flag to form as the market does a pullback. This means the range of the candles are more bullish than usual and they tend to close near the highs. In line with the Trust Project guidelines, the educational content on this website is offered in good faith and for general information purposes only. BeInCrypto prioritizes providing high-quality information, taking the time to research and create informative content for readers.

Step #3 Take Profit Once the Price Travels the same Distance in Price it did in the Flag Pole.

The bullish outside bar was noteworthy as the market failed to push past it. It boded well for the eventual bear flag breakout. This bar marked the breakout of the second bull flag. Although the market fell after the entry, the initial downswing did not hit our stop-loss. Different traders might identify the flag pole differently. Consider the second bull flag pattern in the chart above.

trade

Then you want a tight consolidation where the price begins to move downward or countertrend on lower volume. Lastly, when the volume returns, you’ll buy the break of the previous candle’s high. The optimal place to buy a bull flag breakout is once the trend begins to shift once again in the desired direction. In this 30-minute chart example, you can see that the first candle to make a new high inside the bull flag becomes the breakout candle.

A bull flag pattern trading represents a bullish type of flag pattern. It occurs due to the weakness of bulls pushing the price up before. 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. I’ve now just learnt the bull flag trading guide and I’ll share my experience after practicing it. I have missed out big time trading opportunities for not knowing it earlier.

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The field of crypto-trading is quickly adopting tactics from technical analysis. Hence, many traders are looking to cryptocurrencies for more opportunities too. A trader should wait for the pattern to be formed. It’s formed when the price breaks above the flag’s upper line. After that, the trader can open a buying position.

The flat-top breakout tends to be a favorite amongst traders since it doesn’t pose any substantial pullback in the price trend. It indicates that both buyers and sellers have met and agreed on the key resistance level. Bull flags are usually formed in strong uptrends and are considered continuation patterns. Therefore, this pattern indicates that the market is pausing before moving in the same direction as the primary trend. Other similar chart continuation patterns like the bull flag are the bull pennant and the ascending triangle pattern. It helps trades identify the stage which the trend is currently in.

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Here are the three stages of identifying the bull flag. Now that we’re in a trade we need to establish our profit targets. The way we’re going to find our profit target is quite intuitive. First, we measure the distance the price traveled from the starting point of the bullish flag pattern to the flag and project that move to the upside. Chart patterns are great ways to anticipate reversals of trends.

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