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. A bull flag pattern failure, also known as a “failed bullish flag”, is when a bull flag forms but fails to continue higher in price. A bull flag pattern high timeframe example is illustrated on the monthly stock chart of Apple stock (AAPL) above.
This means for every 100 trades, a trader wins 63 trades making 3 units (189 units total) and loses 37 trades losing 1 unit (37 units total). Therefore, over 100 trades, a trader should hypothetically net 152 units (189 units – best online brokers for bitcoin trading for 2020 37 units). Be aware that past performance is not indicative of future results. This is evidence of the bull flags reliability in capital markets. A bull flag’s alternative name is a “bullish flag pattern” or a “flag pattern”.
Now since this is a trend reversal strategy, you’d want to look for downtrends. That’s why I suggest taking your profits below the next area of resistance you’ve plotted on the https://www.day-trading.info/windsor-brokers-broker-review/ chart. In this case, you want to use the 50-period moving average as your trailing stop loss. Now, what you want is for the price to be above the 50-period moving average.
- The flag can be a horizontal rectangle but is also often angled down away from the prevailing trend.
- It represents not a warning, but a reinforcement of the market’s prevailing strength.
- During a range, wait for the price to form a bull flag pattern below resistance.
- If you can identify key levels on a chart where shorts could be underwater, then see a bull flag form, it could be indicative of a coming squeeze.
The short sell entry was around 70 cents when the volume started to come back. I want you to promise me that you will do your work by tweaking, backtesting, and demo trading these strategies consistently first before risking your hard-earned money. Finally, I suggest using a tight trailing stop loss such as the 20-period moving average. Because it would tell us that the level isn’t sustaining pretty well, and it might be a false breakout instead.
It’s similar … but the top and bottom trend lines meet at a point. Once large volume comes back and starts pushing the stock further down, that could be the time to short sell. Ideally, you pair this with another technical or fundamental indicator — like the first red day after a runup or news of an offering. Now, the first thing you need to do is to spot a downtrend and wait for the price to break its trend line resistance. Setting a stop loss acts as an insurance, strategically positioned below the flag’s nadir or the latest low within the pattern.
When the price candlestick closes below the 10EMA, close the trading position. Do not apply this trade strategy before or during important economic and political news announcements. 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.
What a Bull Flag Pattern Is
Using the bull flag pattern and its variations can help you trade smarter. But remember to use it in combination with other indicators. A common exit plan on a bull flag pattern is to place your stop at the lowest part of the flag after you enter on its volume peak. And when you decide to exit there, make sure to follow through. If you feel like you missed a quick rally or a breakout, a bull flag can open up another entry opportunity.
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.
Strategy #3: Bull flag pattern trend reversal strategy
A bull flag pattern has parallel downtrending resistance and support lines while a bullish pennant has a downward sloping resistance level and an upward sloping support line. The bull flag pattern differences with a bear flag pattern are what it indicates and its shape. A bull flag pattern is a bullish indicator while a bear flag pattern is a bearish indicator. https://www.topforexnews.org/news/full-halo-cme-event-coming-earthside/ A bull flag pattern is shaped like a flag with a flagpole while a bear flag pattern is shaped like a flag with flagpole turned upside down. The bull flag pattern lowest win rate timeframe is the 1-minute price chart with a 54% average win rate. The bull flag pattern highest win rate timeframe is the weekly timeframe price chart with a 65% average win rate.
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. Bull flags form on candlestick price charts, line charts, bar charts, point and figure charts, and open high low close (OHLC) charts. Bullish flags are present in all markets in all time frames.
What Does Bullish Flag Tell Traders
Smart traders know key patterns — and the bull flag pattern can be a crucial momentum indicator. During a range, wait for the price to form a bull flag pattern below resistance. Both bull and bear flag patterns, pauses in the market narrative, offer traders a glimpse of potential future moves. As tactical indicators, they are part of a larger array of patterns that traders use to forecast and strategize, hinting at significant movements yet to come. The psychology behind these patterns reflects a dual narrative. Bull flags indicate a pause for breath in a robust market, with investors poised to capitalize on dips, suggesting that an uptrend is likely to resume.
With that said, the bull flag pattern consists of two parts. A bull flag pattern accuracy is 63% according to the book, “Encyclopedia of Chart Patterns”, by Thomas Bulkowski. The bull flag pattern statistics are illustrated on the table below. Set a trailing stop loss order along the 10 exponential moving average.