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

By March 4, 2021Forex Trading

Bull Flag Pattern

The entry price was set at $37,788 to ensure that two candles outside the bull flag pattern were closed to validate the breakout. Price action breakouts can occur in either direction, but the chances of a trend continuation remain high with a flag pattern. This means the bull flag breakout can trigger a bullish trend continuation, and a bearish flat breakout point can drive a solid downtrend.

Bull Flag Pattern

Here’s an example of a simple bull flag chart continuation pattern. Let’s look at some examples of bullish flags appearing on price charts in order to illustrate the concept and how they appear visually. This is for informational purposes only as StocksToTrade is not registered as a securities broker-dealeror an investment adviser. Once we see the first large candle and the stock rise again, we can buy under $1.40, placing our stop loss below $1.30. We shift the first flagpole to the bottom of our flag to estimate the target. A flat top breakout is a bull flag that consolidates sideways instead of pulling back.

Examples of Bullish Flags

If the resistance of a bull flag is broken, traders can be more confident that the price will continue to move upwards by the length of the pole. On the other hand, if the support of a bull flag is breached, traders can deem that the pattern was invalid. The bull flag pattern trading is quite a straightforward process as long as the previous phase – spotting and drawing the formation – is done properly. As outlined earlier, the bull flag gives a shape and formation to the uptrend and it helps traders to determine entry and limit levels, which is exactly what we are going to do now. We use the same GBP/USD daily chart to share simple tips on trading bullish flags.

Bull Flag Pattern

To draw a price channel, you need simply trade a line touching the highs and lows of a ranging market. Pay attention to how the inside candles formed during the flag. They put in consecutive Bull Flag Pattern lower highs until the breakout day, which took them out. Let’s examine the AMC example above with a little more detail. First, let’s examine the bigger picture trade idea in the simulator.


The initial stop-loss can be placed under the upper trendline on uptrends and lower trendline on downtrends, as a precautionary trail stop. However, some traders may wish to give it more room to avoid wiggles and place their stop at or under the lower trendline on uptrends and lower trendline on downtrends. 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. Another pattern that resembles the bullish flag pattern is called a pennant. Instead of developing parallel lines to form the flag, the lines converge during the consolidation period.

Bull Flag Pattern

But as with the bull flag, wait for the volume to spike again with the next leg of the rally. 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. Longs also jump in when they see the stock rallying further. After the pullback, the stock starts to gain volume and rally for another leg up.

Considerations When Trading Bull Flag Chart Patterns

To see them all, you must be like an athlete who spends hours studying their opponent. They train to better themselves, and just the same, traders need to study these patterns so they are ready when they step in the ring. No matter what bull flags look like, they’re always a sign of a potentially strong move upcoming. The flag is formed by the consolidation after that big move up. As a result, the consolidation period can be filled with candles such as doji candlesticks and hammer candlesticks.

Another variant is called a bullish pennant, in which the consolidation takes the form of a symmetrical triangle. A flag pattern is a trend continuation pattern, appropriately named after it’s visual similarity to a flag on a flagpole. A “flag” is composed of an explosive strong price move that forms the flagpole, followed by an orderly https://www.bigshotrading.info/ and diagonally symmetrical pullback, which forms the flag. When the trendline resistance on the flag breaks, it triggers the next leg of the trend move and the stock proceeds ahead. What separates the flag from a typical breakout or breakdown is the pole formation representing almost a vertical and parabolic initial price move.

Head and Shoulders Pattern

Traders favor this pattern because they are almost always predictable and true. As shown by the bull flag chart pattern above, traders have been buying risk through commodities, the stock market, and risk-based currencies. As a result, the AUD performed well against most other currencies in part because it offers a higher rate of return owing to its interest rate. Hence, traders have a fundamental back drop to support the technical picture for additional strength in AUD.

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