Bull Flag Momentum Strategy

Bull Flag Momentum Strategy Explained

Knowing and understanding the bull flag momentum strategy is crucial for a successful day trader. But what works for one person may not work for another, so it pays to learn a few simple ones initially.

Do you know what the bull flag momentum strategy is? It’s a candlestick chart pattern that allows you to make money on a bullish breakout. Waiting for a bull flag of the nine ema gives you the best entry, and you can use the nine ema for an exit point.

Did you know there are traders out there that trade one strategy? They find it works so well that they don’t need to look for anything else.

The bull flag momentum strategy is one of those. We have someone in our trading service who trades strictly bull flags. He likes to take advantage of the bullish momentum.

One of the great things about sticking with a strategy like the bull flag is that you become a master at it. Therefore, you’re more likely to be successful.

However, don’t feel you have to trade one strategy and one strategy only. Many patterns are set up throughout the day.

Take the trade if you can spot such strategies and the setups are there. It’s all about ensuring proper stock market training and good risk management.

Does Over Choice Mean Stressed Out?

Yes, I believe it does. As we face an ever-rapidly increasing pace of life governed by email, instant messaging, social media, and 24-7 busyness, we live out what Alvin Toffler coined the “age of over-choice.”

An article I recently read dramatically summarized the staggering number of daily choices. According to the article:

  • Dryers Ice Cream offered 34 flavors in 1977; they sell 300 today
  • When Whole Foods opened in 1974, it sold two types of lettuce; now, it sells 40
  • Frito Lay started with two chips – Frito’s corn chips and Lay’s potato chips – now it has 204

We face so many options that we may find ourselves paralyzed, looking at the possibilities. And for what it’s worth, I don’t want it to happen to you.

Profitable day trading chart patterns should be simple, and here’s one I think you’ll find useful. Check out our live trading room to help calm the over-choice of trading.

Bull Flag Momentum Strategy Example

The Bull Flag Momentum Strategy works well on low-float stocks under $10 in day trading. Unfortunately, trading strategy has a downside: It is difficult to manage the risk, and you need a fast execution platform.

Bull Flag Momentum Strategy Example

Bull flags are quite easy to identify once you know what to look for. As you can see in the picture above, several large candles are going up (like a pole), with a series of small candles moving sideways or down (like a flag).

For us day traders, we call this flag “consolidation,” or when buyers sell and take their profits. Despite all the selling going on, surprisingly, the price does not tumble.

The main reason the price remains strong is two-fold: Buyers are still buying, and the sellers are not yet in control. Many traders who missed out on the first opportunity to enter (before the Bull Flag started) are swimming around in the water, looking for their chance to strike.

Wise traders know they shouldn’t buy when the price is spiking, or as we say, “chasing the stock.” The pros wait to enter during quiet times, which is why good stock trading is key.

Avoid Chasing the Moves

If you’re a first-time trader, you must avoid chasing stocks like the plague. Not only is it an account killer, but it’s also a confidence killer. I’d hate to see you lose faith in yourself because you blew it all in one trade.

You must wait for two things to prevent this when trading the Bull Flag formation. First, wait until the stock finds a high point, then for the consolidation period.

You can pull the trigger and begin buying when the stock price breaks in the consolidation area.

More often than not, a stock will show several consolidation periods. That does not mean all are ripe for entry.

I only enter during the first and second consolidation periods. After that, I refuse to enter, fearing momentum and interest waning.

Furthermore, these consolidation periods are risky; the price has likely been over-extended for now, which means buyers will soon lose control.

Avoiding trades after the second consolidation is a smart rule, and you’d be wise to adopt it. We like to put bull flag setups on the penny stocks list we post each night.

Day Trading Course Options Trading Course Futures Trading Course
DESCRIPTION Learn how to read penny stock charts, premarket preparation, target buy and sell zones, scan for stocks to trade, and get ready for live day trading action
Learn how to buy and sell options, assignment options, implement vertical spreads, and the most popular strategies, and prepare for live options trading How to read futures charts, margin requirements, learn the COT report, indicators, and the most popular trading strategies, and prepare for live futures trading

How to Trade the Bull Flag Momentum Strategy

  1. When my scanner or someone in the Bullish Bears chat room alerts me that a stock is surging, I patiently wait for the consolidation period.
  2. I watch the stock during the consolidation period – if you forgot, this period looks like a “flag.”
  3. I enter the trade once the price moves over the high of the consolidation candlesticks. Don’t forget to set your stop loss at the break below the consolidation periods.
  4. I sell half of my position for a profit on the way up.
  5. Move the stop loss from the low candle of the consolidation period to my entry price (this is my break-even point).
  6. Finally, I sell the rest of my position when my target is hit or I think that the stock is losing steam.
Bull Flag Momentum Strategy Chart

$ETSY was a stock on our stock watch lists for a swing trade back when the stock was $45. The 5-minute chart shows that it made a bull flag and then pushed it up. It hit a high and then began to reverse. You could have day traded off the bull flag and the 9 EMA around $49.50 and made at least 50 cents on the trade. Check out our stock alerts for real-time swing trades.

Further Considerations

It’s safe to say that the Bull Flag is just an ABCD pattern that often happens on low-float stocks. But, unlike the ABCD pattern, you want to buy only at or near the breakout.

This is that, in low-float stocks, the price moves up fast and fiercely, then fades quickly. I guess you could call a Bull Flag more or less a momentum and scalping strategy.

Facts About Trading the Bull Flag

  • It’s a long-based strategy found in an up-trending stock
  • Never short a Bull Flag pattern
  • Get in at the breakout when the stock is running
  • Do NOT buy during consolidation
  • Only jump in when there is a confirmation of a breakout
  • You can reduce your risk by waiting until the stock breaks the top of the consolidation area before you buy
  • Trading this momentum strategy is risky, so beginners need to be careful

Final Thoughts: Bull Flag Momentum Strategy

First and foremost, when you use any day trading strategy, you find something similar about moving stocks.

We can scan 5,000 stocks, look for similar criteria, and get up to 20 stocks (give or take) each trading day. Based on our results, these stocks may move 20 to 30 percent daily, which is how we make a living.

  • The first criterion is a float under 20 million shares.
  • The second criterion is strong daily charts with no resistance nearby and above the Moving Averages.
  • The third criterion is the high relative volume, which is at least two times above average.
  • The fourth criterion is a fundamental catalyst or “technical breakout,” which causes the stock to move. For example, an announcement made by the FDA

Day trading is worthwhile, but you must know what you are doing. Hence, knowing a pattern like the bull flag momentum strategy is important. A good day trading strategy can last a lifetime and mean a lifetime of profits.

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