Bullish Flag Formation Signaling A Move Higher

what is a bull flag

Bull Flags are known as a bullish continuation pattern. The bull flag pattern is one of the most common patterns on charts. A bull flag pattern high timeframe example is illustrated on the monthly stock chart of Apple stock (AAPL) above.

Harmonic Patterns in Stock Trading for Beginners

  1. Bull flag pattern resources to learn from include books, websites, and courses.
  2. We discuss this strategy in detail in our post on liquidity traps.
  3. Short squeezes can introduce a lot of volatility into stocks and send share prices sharply higher.
  4. A follow-up rally is likely when combined with other bullish indicators.

During this period of consolidation, volume should dry up through its formation and resolve to push higher on the breakout. The actual price formation of the bull flag resembles that of a flag on a pole hence its namesake. Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training. We teach day trading stocks, options or futures, as well as swing trading. The target of the bull flag is the top of the flag pole. Once the price breaks out of the flag, traders watch to see if the price will move up to the top of the flag pole for continuation.

What is a Bull Flag and how to trade it in Forex

For example, a day trader might find a large move on the 5-minute chart upwards, followed by a handful of candles retracing this move. However, what they might not see is that on the 30-minute chart, the price is trading sideways, limiting potential upside. It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career. A double top pattern is shaped like an ‘M’ and is bearish. A bull flag pattern is shaped like a flag and is bullish.

Bear Pennant Pattern

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. The breakout occurs once the buyers reassume control of the price action after a temporary pause in the uptrend. In this example, we enter the market as soon as the breakout candles close above the flag’s resistance. A bull flag pattern is a pattern in technical analysis that signals a potential resumption of an existing bullish uptrend.

Step 1: Identify the Pattern

what is a bull flag

Bulls are not waiting for better prices and are buying every chance they get. The question is when to buy if you see a bull flag pattern emerge. You could buy in the consolidation phase where the stock is hitting resistance and support levels but this is a risk. If the pattern doesn’t end up being a bull flag, the stock could go down with you holding it in a down pattern.

The stop would be at the bottom of the consolidation at $6. On a heavily shorted stock, the dip is due to longs locking in profits and shorts shorting more. Trade on one of the most established and easy-to-use trading platforms. No matter your experience level, download our free trading guides and develop your skills. The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms.

what is a bull flag

After a short-term peak is created, the price action corrects lower to around 50% of the initial move. Prices consolidated in a gently downward sloping channel (blue). To trade the flag, traders can time an entry https://cryptolisting.org/ at the lower end of the price channel or wait for a break above the upper channel (yellow). Traders then look to take profits by projecting the length of the flag pole preceding the flag (black dotted line).

Thirdly, draw a lower boundary parallel downward sloping trend line from left to right that connects the swing low points together. This marks the pattern’s support area component and the bull flag drawing completion. In this example you have AMC breaking out of its prior trading range on increased volume. It then recedes for 3 candles and then breaks out again.

What is the difference between a bull flag and a bear flag? The bear flag is a countertrend consolidation in a downtrend. The bull flag is a countertrend consolidation in an uptrend.

To draw a price channel, you need simply trade a line touching the highs and lows of a ranging market. We don’t care what your motivation is to get training in the stock market. If it’s money and wealth for material things, money to travel and build memories, or paying for your child’s education, it’s all good. We know that you’ll walk away from a stronger, more confident, and street-wise trader.

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 why do companies prefer debt financing over equity financing 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. A price breakout occurs from the pattern after the consolidation phase leading to upward price movement in a strong uptrend over the next three months.

A bull flag and a pennant can both resolve in the upward direction. However, a pennant is different in that it is usually a 50/50 scenario. For a more detailed tutorial on bear flags, be sure to check out our tutorial here. You should notice that the uptrend should be rather sharp and accompanied by strong volume.

To identify a bull flag pattern, traders begin be observing a prevailing bullish uptrend in the market price action. This price surge is the identification of the flagpole. During this price consolidation period, traders look for lower trading volume.

Bull flags are happy little patterns that show the bulls are in control. 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.