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Always conduct your own due diligence and consult a licensed financial adviser for investment advice. As we mentioned above, you want a bull flag to put in a series of lower highs so that you can buy the breakout of the most recent candle’s lower high. You then can set your stop at the lows of that prior candle. Bull flags can also occur on higher time frames like daily charts. The criteria always remain the same, whether you are trading a 1-minute chart or a daily chart.

You can open a long https://g-markets.net/ when, after a downward consolidation, the candle closes above the upper limit of the trend. After the retracement, we are waiting for the breakout of the upper border of the formed rectangle. Now that we’re in a trade we need to find our target, which brings us to the next step of the best Flag pattern strategy.

Wait for a Breakout

Bullish flag formations are found in stocks with strong uptrends and are considered good continuation patterns. They are called bull flags because the pattern resembles a flag on a pole. The pole is the result of a vertical rise in a stock and the flag results from a period of consolidation. The flag can be a horizontal rectangle but is also often angled down away from the prevailing trend. Another variant is called a bullish pennant, in which the consolidation takes the form of a symmetrical triangle.

The bull flag trading flag pattern is typically seen as a bearish signal, as it suggests that the asset’s price is likely to continue to decline. This is because the sharp decline in price is often followed by a period of selling pressure, as traders and investors look to capitalize on the downward momentum. Like every other aspect of technical analysis and trading, it is better to enter and exit trades using a combination of tools, indicators, and candlestick patterns. Traders of bull and bear flag patterns might hope to see the breakout accompanied by a high-volume bar. A high-volume bar to accompany the breakout, suggests a strong force in the move which shifts the price out of consolidation and into a renewed trend. A high-volume breakout is a suggestion that the direction in which the breakout occurred, is more likely to be sustained.

How to measure a bull flag profit target?

A bull flag is a candlestick chart pattern in technical analysis that occurs when an asset is in a strong upward trend indicating bullish sentiment. These patterns form when a consolidation, another short spike, and some more consolidation follow a substantial spike in price. In short, these bullish flag patterns indicate a pause in the uptrend that leads to uptrend continuation, and bullish flags are one of the most reliable continuation patterns. Flags are continuation patterns that allow traders and investors to perform technical analysis on an underlying stock/asset to make sound financial decisions. These patterns form when the price of a stock or asset moves counter in the short-term from the predominant long-term trend. Flag patterns are used to forecast the continuation of the short-term trend from a point in which the price has consolidated.

Nonetheless, it also met our bull flag identification guidelines. The flag develops off the flag pole as parallel lines form the flag. The more condensed those lines are, the stronger the signal.

In a bull flag, you’d place a buy order above the resistance line. A bull flag is used in the technical analysis of stocks. A bull flag chart pattern is a continuation pattern that occurs in a strong uptrend.

Into the pullback, you’ll want to see a series of lower highs and lower lows. A bull flag means that there is a pause, albeit brief, in the upward momentum of a stock’s move to higher prices. It indicates that the stock might be in a temporary overbought condition, which will likely bring in some early selling pressure in a young bull run. The high volume into the move lower and low volume into the move higher, are suggestions that the overall momentum for the market being traded is negative.

The Bull Flag Pattern — Pros and Cons

I avoid ascending bull flags as they usually offer an inferior reward-to-risk ratio. The instances in Example #1 are traditional bull flags. The first instance in Example #3 is more akin to a pennant.

It forms when the price retraces by going sideways to lower price action on weaker volume followed by a sharp rally to new highs on strong volume. Traders favor this pattern because they are almost always predictable and true. A bull flag pattern resembles a flag flying on a pole. The flag forms the top part of the pattern, while the pole forms the bottom part. The pattern is considered to be bullish, as it typically forms during an uptrend. However, some traders believe that the pattern is not reliable, as it can occasionally form during a downtrend.

A Pennant is basically a variant of a Flag where the area of consolidation has converging trend lines, similar to a Triangle. The bear flag is an upside-down version of the bull flag. But spotting the trend when it is in the nascent stage is challenging, and running along with it right up to the top is an even bigger challenge. That’s because asset prices rarely see a 90-degree rally or collapse. When it comes to making big money in trading, the trend is your friend. Plan your trading strategy according the identified flag trends.

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The trading patterns work in all financial markets, not just the crypto market. In general, flag patterns are considered one of the most reliable continuation patterns that traders use in their technical analysis. This is because they provide the ideal setup for entering a chart trend that is ready to continue. If a bull flag is accurate and is spotted on time, it will signal that a crypto’s price will rise once the pattern is complete.

In a downtrend a bear flag will highlight a slow consolidation higher after an aggressive move lower. This suggests more selling enthusiasm on the move down than on the move up and alludes to the momentum as remaining negative for the security in question. A flag pattern is a correction within a strong trend. During the correction, the price should move slightly opposite to the main trend.

However, the market rose for several days right after the entry. This is why our trading guidelines place the stop-loss at the recent swing high and not the entry bar high. For clarity and ease of understanding, this trading guide focuses on bull flags. Based on these principles, I’ve designed a set of guidelines to find bull flags systematically. So you might be confused when searching for trading examples to learn more about bull flags.

Step 5 — Taking profit

For example, the best bull flags occur at the start of a new uptrend. So, the earlier you are in a bull run or momentum swing, the better your bull flag should perform. The best way to view them is using a candlestick chart. A flag pattern is highlighted from a strong directional move, followed by a slow counter trend move. In this article, we look at how to identify and trade these patterns by looking for entries and exits through breakouts, proportionate targets, failure levels and volume confirmations.

One way traders try to get into the trend is by waiting for the consolidation to break. The consolidation can either break upward or downward. In a bullish market, you expect the breakout to be upward to continue the upward movement.

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The bull flag pattern closely resembles the shape of a flag on a pole. The flag can take the shape of a horizontal rectangle and is often angled in a downward position away from the trend. The illustration above shows a bullish flag pattern. However, its bearish alternative has the same components.

A flag pattern is a technical analysis pattern that occurs when there is a sharp price movement followed by a consolidation period, forming a rectangular or flag shape. How to trade the bullish Flag pattern is as simple as the bullish flag pattern itself. Since this is a continuation pattern we want to trade in the direction of the prevailing trend. So, as the name suggests – bullish Flag pattern – we should expect a bullish move to come out of this pattern.