Bull Flag: A Complete Guide

Did you know that before the introduction of the internet, only folks in huge financial institutions were allowed to trade the stock market? Everything changed with the arrival of online trading. The introduction of online trading and instant dissemination of stock news helped level the game.

Over the years, professionals have introduced several trading courses that have helped change the game. They have taught us how to study the market with one of the most profitable patterns to watch out for, the bull flag pattern. This flag has earned traders lots of cash in the past.

Bull Flag Meaning

Technically, flag patterns are unique patterns normally used in technical analysis of short time frames that are moving in counter to a prevailing trend. And they get their name from their shape, which is normally a flag on a pole.

As per the bull flag definition, these popular bullish chart patterns are created by two rallies separated by a small consolidating retracement period.

Bull flags are the most reliable patterns used by traders. And that is because they create a unique setup for getting into existing patterns that are about to continue. Bullish flags are similar and tend to form in an existing trend.

What Is A Bull Flag Pattern?

Unlike the bear flags, bull flag patterns are continuation patterns that confirm an extension of an uptrend. Normally, the price action in a flag pattern consolidates between 2 parallel trending lines in the opposite direction of a trend before it continues.

This pattern resembles an almost vertical spike-triggered when the buyers blindside the sellers. It then pulls back upwards along the trend lines creating a flag.

As the rally ends, the price creates a very tight range marked by a slightly lower low and a lower high. If it’s accurate, it serves as an exceptional signal for the continuation of an upward trend.

Example Of A Bull Flag Chart Pattern

When looking for a bull flag, you should first look for an uptrend market that has been moving up for a few hours or even days. Once you find such a chart, you can look at the volumes that help confirm a major move upwards.

The second fact you must look for is the likelihood of the trend that’s moving downwards improving by looking at the candle sticks. You’ll see lower lows followed by lows before it breaks out with a higher high. The chart below shows the trend lines forming the pole and the flag before the breakout continues upwards. (IMAGE)

Bull Flag Pattern Variants

Flat Top Breakout Pattern

Most traders prefer this variant since it doesn’t have a real pullback. The resistant level of this variant remains as high as its pole, creating a horizontal line. In fact, the support may even continue ascending to create a triangle that’s known as a pennant.

Descending Flag Pattern

It refers to a strong pullback from the flagpole with the trend creating a W, which may not always happen. The bottom and top lines tend to remain parallel while descending until it breaks out. Descending flag pattern is actually the most common bull flag pattern variant.

Bull Pennant Flag Pattern

This unique variant also features a flagpole rising in its stock. And instead of a rectangular, it creates a triangular flag with the bottom ascending and the top descending. Therefore, the resistance and support levels will converge instead of trading at the same level.

These variants are a strong sign that the bull flag stock is about to break out.

How To Use The Bull Flag Pattern?

Generally, when you notice this pattern, you should look for a consolidation phase. That’s the spot where the support and resistance levels meet, which can be quite risky. After all, the stock may continue going downwards.

Expert traders purchase above the resistance, which may be a new high serving as a breakout. You can get the right price by using a buy-stop order. If it goes your way, then you may be in for a reliable breakout that can earn you several pips.

But if it descends, then you can still cancel the buy-stop order and wait for another entry.

Pros And Cons Of A Bull Flag Pattern

The Pros

  • Bull flags tend to form on a wide range of charts of different sizes.
  • It’s quite popular and can be seen on several charts.
  • Very easy to identify and take advantage of.
  • If done correctly, it can result in huge profits.
  • It offers a great risk-reward ratio.
  • Works in a wide range of markets.

The Cons

  • It can be quite challenging for beginners to spot them and even get the right spot to enter.
  • Known to trigger false breakouts.
  • It can take even hours to develop; therefore, you have to be quite patient
  • Not every chart can guarantee a future uptrend; therefore, be careful and take your time.
  • Only works with buy-stop orders.
  • You might not see it until the flag’s stock has developed and created a rise in price.

What Is A Bull Flag In Crypto?

Bull flags work in a wide range of markets, including cryptocurrency. This pattern creates the same shape with crypto as it does with forex and stock markets. In a volatile market, you can use your usual crypto trading strategy like bull flag pattern and swing trading.

The flag pattern forms in an uptrend market that has ceased for a bit, creating an exceptional entry point. And when done correctly, you can easily benefit from the ongoing market momentum. But you need to know how to draw your trend lines ad determine the kind of bull flag crypto variant you’re dealing with.

If it’s a flat top variant, then the support may continue ascending while the resistance remains on the same level as the flag’s pole. Knowing these variants can work perfectly for every trader.


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