As such, the tips of the top pattern form an M, while the bottom ones resemble the letter W. The pole formation comes from the vertical rise of stocks. On the other hand, the flag section forms during market indecisiveness about the price.
How to Trade the Bull Flag
Before bull flag pattern trading, spot and draw the formation of the uptrend. There can be several shapes that almost resemble a flag, so you want to get the right one.
That way, you know the precise entry and limit points. You can look for a descending trend line to find the breakout point. At the same time, find a place where you can exit fast if you enter it at the wrong place. Hence, you can place a stop order at the lowest point of the consolidation.
Bull Flag vs Bear Flag
When you see a bull flag, you know the stock has an uptrend, whereas a bearish flag tells you the price is in the middle of a downtrend. Therefore, a bull flag signals a positive stage, whereas a bear flag suggests a negative development.
How to Spot a Bull Flag
Investors know there’s a bullish flag when they see the following three elements. One, in any bull flag pattern example, there’s a flagpole indicating the asset’s price. Also, they see a flag symbolizing the parallel lines of the trend. The third element is a breakout point of the bull flag pattern meaning the start and end point.
Benefits and Risks of a Bull Flag Pattern
Stocks bull flag pattern charts can show you the position of a trend. As a visual chart, it’s reliable and easy to see what’s happening to stock. Additionally, the entry point suggested by spotting the bull flag has a lower risk. It saves you from costly guesswork.
However, a bull flag can give you a false trading signal. You may fall into the trap of thinking it’s an upside breakout only for it to go down.