When studying the patterns, sometimes you’re given examples that look perfect and easy to find. We are now looking at the H4 chart of the GBP/USD, which shows a bullish Pennant chart pattern. The pattern consists of the Bull Flag Chart Pattern blue triangle and the thicker red bullish line, which is the Pole of the Pennant. Once the trade is executed, you should put your initial stop loss right below the lowest point of the flag as shown on the image (S/L 1).

In this case, you should place a buy stop slightly above the upper side of the flag. If there is indeed a bullish breakout, the buy stop will become the new buy order. Continuation patterns like the bull flag can repeat the pattern — hence the name. The stock could give a false signal in the pennant or flag, and then fail to rally again.

What Is A Bear Flag Pattern?

The consolidation phase should be well-defined within two down-sloping parallel trend lines. The next example of the BTCUSD weekly chart provides a detailed step-by-step guide to identify a bull flag and trade it effectively. The long entry must Bull Flag Chart Pattern be placed at the break of the flag. While the stop-loss order , should ideally be placed below the consolidation flag. The first target should be around the previous swing high, and if the trend is strong enough, then the movement will continue.

Sometimes they’re a bit bent, misshapen, and hard to identify, which means they can bring uncertainty to the mix. This is for informational purposes only as StocksToTrade is not registered as a securities broker-dealeror an investment adviser. Interested in trying the number 1 trading platform? And after the fakeout, it fizzled out and cracked under the stop.

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There are slight variations of the pattern — like the flat top breakout and pennant. So it’s important to decide if you want to learn to trade those as well. Once we see the first large candle and the stock rise again, we can buy under $1.40, placing our stop loss below $1.30. We shift the first flagpole to the bottom of our flag to estimate the target. A flat top breakout is a bull flag that consolidates sideways instead of pulling back. Perfectly structured with step-by-step guides to help you understand the principles of price action analysis.

With the bull flag, crypto investors who missed the initial run-up now have the opportunity to catch a runaway trend. In the end, day trading a security, stock, or cryptocurrency needs risk management. Ask we all should know by now, no gains come without risks. As long as you did a thorough analysis, you’re already halfway to your success. The key thing about the bear flag chart pattern strategy is that it’s a strategy that works only in a bear market and it works beautifully.

Can Bull Flags Work In Day Trading?

In the end, the price should break above the upper boundary of the pattern. If you’re a conservative trader you can wait for confirmation provided by the flag breakout. The breakout of the flag signals that the downtrend is ready to resume.

We will discuss this in more detail but for now, let’s get familiar with the technical structure of the Flag pattern. There are two basic approaches to enter the market with the bear flag pattern. Rising And Falling Wedge Chart Patterns Aggressive traders will enter at the top of the bearish flag as this will secure a little bit of bigger profits. We’ve done something different with the Bear flag chart pattern strategy.

What Is A Bullish Flag?

Remember, the only difference between Flags and Pennants is in the nature of the correction. Then you need to apply the targets of the pattern. This is shown with the purple and the magenta arrows on the chart. The first target equals the vertical size of the blue triangle measured from the highest point. The second target equals to the vertical size of the Pole.

With a bull flag chart, traders see a strong rally in the stock price. That’s followed by a period of consolidation where some traders sell and others start to buy. Flags are continuation patterns of the preceding trend leading up to the flag. They form after a parabolic price rise or fall and then form a short-term reversion trend with parallel rising or falling upper and lower trend lines. The flagpole illustrates the preceding trend, and the flag is the reversion just before the breakout or breakdown that continues the prior trend.

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Clients must consider all relevant risk factors, including their own personal financial situations, before trading. The upper part of the triangle is flat, like a ceiling that can act as a resistance level . Figure 1 shows an example of a bullish flag trade. They can provide you with a bullish or bearish context. You can use them as tactical setups to fine-tune your market entries and exits.

This pricing level can be identified by first measuring the distance in rise of our initial decline. This value can then be subtracted from the peak resistance line formed from our consolidating flag. The difference between a bullish and a bearish flag is in the direction of the price movement. With the bullish flag, the idea is to participate in a strong uptrend. Meanwhile, with the bearish flag pattern, the idea is to trade short in the direction of the prevailing downtrend. It helps trades identify the stage which the trend is currently in.

The Bull Flag Pattern Explained

But despite the similarities, there are indeed some differences. The bull flag is a classic price action pattern for trading pullbacks. You’ll find it on every list of essential chart patterns. And over time, it has evolved from a rigid pattern form into a trading concept. As mentioned earlier, the bull flag is a continuation pattern. Therefore, we are looking to identify an uptrend – the series of the higher highs and higher lows.

A bull flag pattern is a chart pattern that occurs when a stock is in a strong uptrend. It is called a flag pattern because when you see it on a chart it looks like a flag on a pole and since we are in an uptrend it is considered a bullish flag. First we need to find the flag pole which will be identified as our initial decline. This decline can be steep or slowly sloping and will establish the basis for our trend. This is identified as a period of consolidation after the completion of prices initial decline.

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Trading PatternsWizard signals may result in losses. Leverage can work against you as well as for you, and can lead to large losses as well as gains. You should only trade with funds that you can afford to lose. As we have discussed earlier that identification of a flag is not an easy one because of its components.

Reviewed by: Lorie Konish