Bull Flag Pattern: 6 Simple Steps to Trade Bull Pennants

Mastering the Bull Flag Pattern: Six Simple Steps for Successful Trading

At Trading Strategy Guides we really love the idea of having different chart patterns, whether advanced price patterns or simpler ones that pretty much everyone has heard of like what we’re going to talk about in this article, namely the bull flag pattern. The bull flag pattern itself is essentially just a continuation pattern; it’s just sort of representing a pause or a pullback in the market after a stronger move.

The main reason why we feel this is the best trade Flag pattern strategy is that you’ll not be forced to catch tops or bottoms, which is like catching a falling knife. However, our team at Trading Strategy Guides has developed a more conservative approach to spot tops and bottoms by using the following reversal trading strategy: Parabolic SAR Moving Average Trading Strategy.

The Flag Trading Pattern is one of the easiest to help you build your trading skills. Share on X

Now …

We have to answer to an important question: what technical indicators do the best Flag pattern strategy needs?

Well, the simplest answer is NONE.

Trading this method is in itself a pure price action pattern that doesn’t require the use of any technical indicator. Share on X

Before we start covering in depth don’t forget to take notes because writing down the steps of the best Flag pattern strategy will cement the  rules in your mind.

An Explanation of the Bull Flag Pattern

The bullish flag pattern is a powerful technical pattern that can develop from the lowest time frame possible (1-minute TF) all the way up to the monthly chart. More, this is a universal pattern that can show up in all markets.

Bullish Flag Pattern
Bull flag vs usa flag

It’s not a coincidence that the bullish flag pattern resembles a national flag after all; the name was inspired by the similarities with the national flag.

The bullish flag pattern is constructed in two parts:

  •         A strong and sustained rally.
  •         Followed by a tight range that slowly drifts lower to form the flag portion of the bullish flag pattern. Another characteristic of this tight range is that it should be contained within two parallel lines.

If you’re still confused then please have a look at the chart below:

Best Flag Pattern Strategy
Bullish flag pattern

Not only that the bullish flag pattern is a very simple technical indicator, but it can lead to moves that are of the same magnitude as the flag pole movement. In the next section, you’ll learn how to trade bullish flag pattern and how one should trade the best flag pattern strat egy.

Step one: Identify Pattern

How to trade the bullish Flag pattern is as simple as the bullish flag pattern itself. Since this is a continuation pattern we want to trade in the direction of the prevailing trend. So, as the name suggests – bullish Flag pattern – we should expect a bullish move to come out of this pattern. We also have training for building a foundation before a forex strategy matters.

In this case, we want to enter when we break above the upper flag “border” or above the top of the flag pole.

Again, remember this is a continuation pattern.

If you’re just getting used to the bullish flag pattern, just zoom out a little bit on your chart because it can make a really big difference. Zooming out your charts you will be able to spot the bullish flag pattern much faster.

Flag Pattern Technical Analysis
Bullish flag zoom

Let’s now get straight into the buying rules for the best Flag pattern strategy.

The Best Flag Pattern Strategy

(Buy Rules)

Step #1: Zoom out Your Charts and Mark on the Consolidation Zone – The Flag – of the Bullish Flag Pattern

We recommend all the time to play with the charts and zoom out so you can better identify the bullish flag pattern. Following this step, it will also make it visually a little bit easier to plan your next move.

This step is quite important to be done, otherwise, you won’t be able to identify when the next movement will happen.

Bull Flag Technical Analysis
Eurusd bullish flag pattern

Most trading platforms come with a technical tool that can help you draw a parallel channel and highlight the flag pattern. On the TradingView platform, our preferred trading platform, the channel tool is located on the right hand-side panel:

Eurusd Pattern
Flag channel

Next, we need to figure out where we need to get into the trade, which brings us to the next step of the best Flag pattern strategy.

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Step #2 Enter Long Position at the Break of the Flag Pattern

We have got a really solid looking setup here that follows exactly the rules highlighted in the Bullish Flag Pattern Explained. So, now we can safely enter at the immediate breakout above the flag.

Note* You can now safely zoom in so you can better manage your trades as we already identified the bullish flag pattern.

How To Trade
Bullish flag pattern buy entry

Alternatively, you can wait for a breakout and only enter after a pullback that retests the flag. This is a more conservative approach. However, there is a big risk with this type of chart patterns that you won’t see any pullback once the breakout happens.

Bull Flag Pattern
Bullish flag pattern pullback entry

In our example, we would have missed a great opportunity if we would have waited for a pullback to enter a trade. Most of the time we’re going to get a really big volume burst out the moment the breakout happens, which will make it harder for a pullback to develop.

You’re right if you think this looks more or less like a breakout strategy and if you want to learn some tips and tricks on how professional traders use breakout strategies please read our insights here: Breakout Trading Strategy Used by Professional Traders.

Now that we’re in a trade we need to find our target, which brings us to the next step of the best Flag pattern strategy.

Step #3 Take Profit Once the Price Travels the same Distance in Price it did in the Flag Pole.

Now that we’re in a trade we need to establish our profit targets. The way we’re going to find our profit target is quite intuitive. First, we measure the distance the price traveled from the starting point of the bullish flag pattern to the flag and project that move to the upside.

TradingView comes with a very handy tool called “Measure” which will allow you to quickly measure how big the Flag pole was:

Best Flag Pattern Strategy
Tradingview

Alternatively, if you’re an MT4 trader, if you don’t want to count on hand, you can simply use the Fibonacci indicator and set your target at the 100% Fibonacci ratio.

We can see that we have a good profit target of approximately 262 pips and if we measure the same amount from the breakout point and project it to the upside we get our profit target.

How To Trade Bullish Flag Pattern
Bullish flag take profit

Now that we have a good understanding of where to take profits, there is still one more thing left that we need to take care of, which brings to the next step of the best Flag pattern strategy.

Step #4 Place the Protective Stop Loss below the Flag

The protective stop loss is generally placed below the lower Flag “boarder” or below the bottom of the consolidation zone. A break below the flag will automatically invalidate the bullish flag pattern structure. This is quite obvious because the flag structure won’t look any more like a flag.

Bullish Flag Pattern
Bullish flag stop loss


Note** The above was an example of a buy trade… For a sell trade we need to trade the “cousin” pattern of a bullish flag pattern which is the Bearish flag pattern. Use the same rules – but in reverse – for a sell trade.

Bearish Flag Pattern
Bearish flag pattern

Bearish Flag Pattern – USD/JPY

Summary

You should now know how to trade bullish flag pattern like a professional trader. This is a very simple price pattern if not one of the simple pattern you’ll ever encounter, but the bullish flag pattern is one of the most powerful technical patterns out there. We also have training for a Million USD Forex Strategy

When you’re able to tighten your stop loss at the levels the bullish flag pattern allows you to do you know you’re on the right path. But, not only that, your profit potential is multiple return of your risk. In essence, you risk a little to gain a lot more which is the thing that most traders should strive for. 

Before you sign out, make sure you also read our 2 Keys to Success to further enhance your trading experience.

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In conclusion, the bullish flag pattern is a powerful tool that can provide traders with valuable insights into market trends and help them make profitable trading decisions. This pattern is characterized by a period of consolidation following a strong uptrend, forming a flag-like shape, and is often accompanied by lower trading volume.

Traders can use the bullish flag pattern to identify potential trend continuation opportunities by entering a long position after the breakout. However, traders should exercise caution and wait for confirmation of the breakout to reduce the risk of false breakouts. Additionally, traders should use other technical indicators and market trends to confirm their trading decisions.

When trading the bullish flag pattern, risk management strategies such as stop-loss orders should be implemented to limit potential losses. Traders should also set realistic profit targets based on the size of the flagpole to maximize their profits.

Overall, the bullish flag pattern is a reliable and profitable chart pattern that can provide traders with a competitive edge in the stock market. By understanding its key characteristics and following the guidelines outlined in this article, traders can increase their chances of success and maximize their profits.

Please leave a comment below if you have any questions about Bullish Flag Pattern!

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Thank you for reading!

Frequently Asked Questions:

  1. Can I make money trading the bull flag pattern?
    Nothing in trading is guaranteed but if you can learn how to identify this setup and use conservative risk management rules you can make money trading this pattern.
  2. What is a flag pattern in trading?
    A flag pattern is a technical analysis pattern that occurs when there is a sharp price movement followed by a consolidation period, forming a rectangular or flag shape. It can indicate a continuation of the trend.
  3. What is a bullish flag pattern?
    A bullish flag pattern is a flag pattern that occurs during an uptrend and signals a potential continuation of the upward momentum.
  4. What is a bearish flag pattern?
    A bearish flag pattern is a flag pattern that occurs during a downtrend and signals a potential continuation of the downward momentum.
  5. How do you identify a flag pattern?
    A flag pattern can be identified by looking for a sharp price movement, followed by a consolidation period in the form of a rectangular or flag shape. It is important to confirm the pattern with other technical analysis tools.
  6. What is the target price for a flag pattern?
    The target price for a flag pattern is often equal to the length of the flagpole, which is the distance between the low of the consolidation period and the high of the sharp price movement.
  7. How do you trade a flag pattern?
    To trade a flag pattern, wait for the price to break out of the consolidation period in the direction of the trend, and enter a long or short position accordingly. Set a stop loss below the low of the consolidation period and take profit at the target price.
  8. What are the risks of trading a flag pattern?
    The risks of trading a flag pattern include false breakouts, where the price breaks out of the consolidation period but fails to continue in the direction of the trend, and unexpected news or events that can cause sudden price movements.
  9. Can you use other technical analysis tools with the flag pattern?
    Yes, it is recommended to use other technical analysis tools such as support and resistance levels, moving averages, and volume indicators to confirm the flag pattern and identify potential profit targets.
  10. Can the flag pattern be used in any market?
    Yes, the flag pattern can be used in any market, including stocks, forex, and commodities.

Here is the video of bullish flag pattern !


 

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Forex Strategy Trading Bullish Flag Pattern Pdf
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3 Comments

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  1. Great article
    what should i do if the consolidation portion has continued for long time should i look to pattern as a price channel ?

    • Thank you, If consolidation has continued for a long time, it may be worth considering a price channel pattern. Price channels can offer valuable information, but it’s important to monitor price action, adjust your trading plan, use other technical indicators and manage risk effectively.

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