The initial targets on all flag patterns will be the high or low of the flagpole. If the flagpole price peak is exceeded, then you can use Bollinger Bands and or fib price levels. To get fib price level targets, first plot the high to low and low back to high price levels of the flagpole. 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 (PRZ). 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.

What Is An Alternative Name For A Bull Flag Pattern In Technical Analysis?

The price rises above the resistance line and trends higher to the upside before reaching the trade target level. A bull flag pattern short timeframe example is shown on the 1-minute price chart image of Bitcoin above. The Bitcoin price initially moves up which forms the flagpole component of the pattern. Price consolidates for 35 minutes in a narrow low volatility range before breaking out of the range and continuing higher in a bullish trend to reach the target profit level. A bull flag pattern stock market example is illustrated on the daily price chart of Tesla stock (TSLA) above. The stock price rises in a bullish trend before a swing high price pullback and consolidation.

Price Breaks

Your exit point can be 3-10 pips below the projected magnitude of the preceding flag pole. The upper line would be lower risk since it is closer to the current price, whereas the second line could be considered a second support, making it a riskier stop out. As shown in the example below, without a view of the higher timeframe analysis, the retail trader would have no way of knowing that this Bear Flag Pattern is invalid. It should be avoided because it reached a higher timeframe key level. So, the trader who would have traded this Bull Flag Pattern the retail would have achieved only a 1.7 risk-to-reward ratio.

1. The fourth bull flag trading step is to place a stop-loss order below the swing low price of the pattern support level.
2. Breakout – the moment when the price begins to rise again, continuing the upward pattern.
3. Luckily when using the bearish flag pattern or the bullish equivalent, then the flags upper and lower lines can be used.
4. Flag patterns are accompanied by changes in volume as well as price.
5. Consider a stock price crashing dramatically, then taking some time to recover before potentially plunging even more.
6. Traders can profit from identifying bull flag patterns by going long on bullish trends.

What Happens After a Bull Flag Pattern Forms?

It’s not a broker, and it does not ‎market for any brokerage services.‎ CTI FZCO does not act as or conduct services as a custodian. All program fees are used for operation costs including, but not limited to, staff, technology and other business-related expenses. Information on this site is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Understanding what institutions are doing and the logic behind why the market is in consolidation or should move in a certain direction will increase your chances of success. It will also increase the probability of your trades and help you avoid falling into manipulation traps and getting stopped out. In a Bearish Flag scenario, this could either be at a break below the last low of the flag (E) or below the low created by the flag pole (B).

Here we have another ascending flagpole on the left but this time the pause in the uptrend is more drastic, as we start to bear flag vs bull flag see lower highs and lower lows. But with the lower highs and lower lows, we’re still noticing a symmetrical channel that’s descending. Once the price action breaks up past the resistance of the channel, we have a signal to hit buy in continuation of the uptrend.

If you are scalping early morning momentum, you might want to trade from the 1-minute charts. 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. Notice the difference between the bull flag example above and this pennant example.

A bull flag forms during an uptrend, after an impulsive trend wave (the pole), when the price consolidates in a narrow, downward-sloping range, resembling a flag on a pole. Typically, traders use trendlines to define the range behavior in a bull flag. Learning how to identify and use indicators helps grant a greater deal of certainty for both short- and long-term trades, especially when combined with fundamentals and basic technical analysis. Day traders may make their entry just several candles after for shorter-term trades, though this comes at a much higher risk of entering on the basis of a false signal. It’s critical to understand that just because flags are continuation patterns, that doesn’t mean you should enter a trade immediately after you identify one. The bull flag pattern differences with a bear flag pattern are what it indicates and its shape.

How to Identify and Trade Flag Patterns?

The price coiling up and rising out of the trading range sees the identification of the pattern’s breakout point and the completion of the pattern’s identity. All investing involves risk, including loss of principal invested. Past performance of a security or strategy does not guarantee future results or success. Using multiple MAs of different time intervals can help you confirm a flag pattern. This creates immense opportunities for traders, especially if they are trading CFDs, allowing them to trade in both directions. These two patterns can give you a lot of information about the market.

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2. The upper line would be lower risk since it is closer to the current price, whereas the second line could be considered a second support, making it a riskier stop out.
3. Ensure that you recognize the pattern of flagging correctly by verifying the direction of flagging and the point of breakout.
4. To identify a bull flag, traders can use a bull flag chart pattern scanner or simply scan capital markets that are in a bullish uptrend and wait for a market consolidation period.

This brief suspension creates a pattern resembling a flag, as the price settles within a small range. They say when the only tool you have is a hammer, everything is a nail. This is why flag patterns are valuable tools, but should be used with other indicators and even approaches to analysis. Again, the biggest mistake is misreading the financial markets and opening on a short position on trends that turn out to be false signals.

Bull flags, like most continuation shapes, represent a bit more than a shorter lull in a bigger move. Moreover, they occur as assets/stocks hardly move higher in a straight line for a long period because these moves are broken up by shorter periods. This pattern starts with a strong almost vertical price spike that takes the short-sellers completely off-guard as they cover in frenzy as more buyers come in off the fence.

Additional tools like technical indicators can make flag patterns more reliable and easier to trade. Bull and bear flags tell traders where the market might be heading. Trading volume is usually high during the sharp drop of the flagpole, then decreases during the flag’s formation. Volume typically rises again when the price breaks down, confirming the pattern. On a chart, the bull flag shows red (downward) candles during the flag phase, but these candles are smaller than the green (upward) candles in the flagpole.