What Are Bull Flag Patterns and How to Trade This Pattern?
Bull flag patterns are one of the most popular bullish patterns. They consist of either a large bullish candlestick or several smaller bullish candlesticks up forming the flag pole, followed by several smaller bearish candlesticks pulling back down for consolidation, which forms the flag. Look for price move out of flag to confirm bullish breakout. Watch our video on how to identify and trade bull flag patterns.
What Is a Bull Flag Pattern & How to Identify These Patterns?
A bull flag pattern consists of a larger bullish candlestick which forms the flag pole. It’s then followed by at least three or more smaller consolidation candles, forming the flag. You will see many bull flag patterns that consolidate near support levels then when support holds, price action breaks out of the flag.
Bull flag patterns are a common pattern found in charts. Bull Flags are known as a bullish continuation pattern. It has a big move up together with consolidation. The bull flag pattern is one of the most common patterns found on charts. Watch our video above to learn how to identify flag patterns.Japanese candlesticks patterns were invented by legendary rice trader Homma. He saw the correlation between price action and emotions. Even back then emotions influenced trading.
Candlesticks are a way to gauge the way traders feel about a stock. We may be scattered all over the world and don’t know each other, however, candlesticks tell us how we all feel about a security. Learn how to trade the different types of stocks.
Basics of Bull Flag Patterns
A bull flag chart pattern is seen when a stock is in a strong uptrend. As a result, it’s called a bull flag because of its shape. There’s a strong move up resulting in bullish candlesticks forming the pole.
The flag is formed by the consolidation that happens after that big move up. As a result, the consolidation period can be filled with candles such as doji candlesticks and hammer candlesticks. These tell a story of indecision.
Hence the shape of the flag isn’t as important as what it’s telling you. A stock that has a strong move up and consolidates but refuses to drop is telling a story. As a result, know what the story is.
When you see that pattern, you know another strong move up is coming. No chart pattern is going to look perfect and that’s ok. Hence why we study.
If you’ve been in candlesticks school and paying attention, then you’ve heard the phrase, find the patterns within the pattern. Candlesticks group together over a period of time to form these patterns.
Bull flag patterns can be apart of a larger pattern like a cup and handle pattern or a head and shoulders pattern. When studying the patterns, sometimes you’re given examples that look perfect and easy to find.
It’s important to look at real world charts and try to spot the patterns in them. They’re not always picture perfect. Bull flags may form then again break down.
If you’re relying on one pattern to tell the story, you’ll find trading to be difficult. That’s why it’s so important to be able to see patterns within patterns.
What Is a Bull Flag Breakout?
A bull flag breakout happens when a large bullish candlestick forms a flag pole with consolidation candles that pull back near support levels. When a bullish candlestick breaks above the consolidation of a flag then that’s when a potential breakout is occurring. Ideally you’d like to see price continue and break above the top of flag pole.
What Do the Technicals Say?
Technical analysis is important but it’s nothing without candlesticks. Candlesticks are the most important part the technical analysis basics. They form key support and resistance areas.
Not only do candlesticks form those fundamental areas, you can use moving averages as well. The simple moving average formula and the VWAP trading strategy can be used as support and resistance as well as buy and sell signals.
Bull flags can be found on any time frame you use for trading. When you couple them with moving averages like the 9 and 20 exponential moving averages, you can have a pretty good formula for trading.
Moving average crossovers on any time frame supply important buy and sell signals. Coupling these different tools make for a clearer picture.
How to Trade Bull Flag Patterns
- How to trade bull flag patterns:
- Watch for a bullish candlestick that forms a flag pole.
- Look for at least 3 or more consolidation candles that hold support levels.
- Once price breaks above the last smaller consolidation candle take entry at break of high.
- Watch if price can break above high of flag pole.
- Use candlestick close below midway of flag as your stop.
Bull flag trading signals a continuation of a strong trend upwards. Just because they’re common doesn’t mean they should be taken lightly.
You need conformation such as a strong move up. Without that the formation becomes questionable and trading it as a bull flag is risky. You also need volume on the first move along with consolidation.
A second strong move up after that consolidation is also necessary. As stated earlier, no pattern is going to look the same every time. Sometimes they’re messy and bull flags can take on a couple different forms.
No matter what they look like, they’re always a sign of a strong move up coming. Look at what patterns they’re apart of just to confirm that. Take our candlesticks patterns course.
Just like an athlete spends hours studying their opponent and bettering themselves, traders need to do the same thing. Trading isn’t for the faint of heart. Even the best traders fail.
Michael Jordan and Tom Brady didn’t just wake up the greatest athletes of their sport. They dedicated time and effort to be great. They have failed yet it doesn’t deter them. We can learn a lot from that approach.
There’s no magic formula in trading to get rich quick. You need to put in the time and the effort. Study the courses on our website and open a paper trading account.
It’s equally important to spend time practicing in your paper account not only finding the patterns in the chart but also practice trading them. You’ll never regret the time spent learning. Take our free online trading courses.