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Category: Forex Trading

There are many price action patterns that traders use to catch moves, but none of them catch my eye quite like bullish and bearish flags. Overall, the pattern is considered to be a formidable pattern to trade, as long as all elements are in place. This is especially the case when the retracement ends at around 38.2%, creating a textbook bullish flag pattern.

In this article, we will discuss what the bear flag chart pattern looks like, how to identify it, and what trading strategies you can use when trading it. The strategy will work only if the pattern is fully formed. The formation is confirmed when the price breaks above the flag’s upper boundary (or so-called resistance). Brokerage services for alternative assets available on Public are offered by Dalmore Group, LLC (“Dalmore”), member of FINRA & SIPC. “Alternative assets,” as the term is used at Public, are equity securities that have been issued pursuant to Regulation A of the Securities Act of (“Regulation A”).

How to Plan a Trade Using Flag Patterns

The high tight flag is created when the stock has a very sharp move higher followed by a brief consolidation period. This consolidation creates the flag part of the pattern. The breakout from the flag generally signals a continuation of the move higher. Bullish or bearish flag patterns are short-term trends that may last from one to six weeks. If a bull flag pattern is correctly spotted, it will indicate the continuation of a bull trend that already exists, and the price will increase after the pattern is finished.

flag pattern

If you have been trading for awhile, you’ve likely seen their impact. It’s a typical sequence as shares in a stock spike up strong one day and then collapse in the… We’ll get into how to trade these price action patterns in a later lesson. For now, just focus on being able to identify these patterns – they occur all the time and can be a powerful asset in your trading toolbox. Notice in this example how the continuation is the exact same length as the flag pole. The distance for the flag pole is measured from the swing low to the swing high of the flag pattern.

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They’re generally small, which meansrelatively small risk and quick profits. An ascending triangle is a chart pattern used in technical analysis created by a horizontal and rising trendline. The pattern is considered a continuation pattern, with the breakout from the pattern typically occurring in the direction of the overall trend. As a result, traders may consider this slide the start of the downtrend.

Even then, as with any investment, there could always be a negative outcome. Volume patterns may often be used in conjunction with flag patterns, with the aim of further validating these formations and their assumed outcomes. The Short Sale Rule is a rule imposed by the SEC that governs when stocks can be short sold. It’s designed to prevent short sellers from piling onto a down trending stock and causing the price to crater. The Short Sale Rule is very important for short sellers to… Most traders are aware of initial public offerings, but few fully understand secondary offerings.

Please see the Day Trading Risk Disclosure Statement. All investing involves risk, including loss of principal invested. Past performance of a security or strategy does not guarantee future results or success. Furthermore, the flag pole was approximately 260 pips while the continuation only resulted in a 230 pip rally.

flag pattern

The patterns are characterized by diminishing trade volume after an initial increase. An example of a bear flag chart pattern can be seen in Ethereum from mid-March to early April 2020. ETH formed a bearish learn to trade the market, having made a sharp sell-off from $200 to $160. The bear flag pattern is one of the most popular price action patterns. It is used to predict the continuation of a bearish trend.

When this occurs, consider cutting losses quickly, and not waiting for the stop loss to get hit. This method will help to keep the loss small and gives you time to prepare for trading another breakout. Flags are often considered continuation patterns, meaning that the breakout tends to theoretically occur in the direction of the preceding move—or the same direction as the pole.

Once the stock peaks out, the bears regain some confidence as they add to their short positions only to get trapped again when the breakout forms causing more short covering. This is when forced liquidations and margin calls kick in. The question is when to buy if you see a bull flag pattern emerge. You could buy in the consolidation phase where the stock is hitting resistance and support levels but this is a risk. If the pattern doesn’t end up being a bull flag, the stock could go down with you holding it in a down pattern. Instead, some people look to buy at a price just above the resistance level.

At this point, this overlapy uptrend from to looks like an ABC correction to me. Altough I believe there will be a lot of buyers at the 0.618 FIB retracement because… Like most patterns, volume must be present on the breakout. This confirms the pattern and increases the likelihood that the breakout will be successful.

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If you are an active stock trader, then you may have come across price action tools and indicators for technical analysis. From trading indicators and chart patterns to technical analysis theories, there are many strategies to choose from. A bull flag breakout offers a transparent price level at which traders can place a long trade. In addition, it guides when to put the stop-loss order, giving the necessary support for effective trade management.

  • Among the various technical chart patterns in their toolboxes lies the bull flag chart pattern, which is also one of the most common.
  • It is formed when there is a sharp sell-off followed by a period of consolidation.
  • The bear flag starts with a significant fall in prices, followed by a period when the price remains between 2 lines.
  • The breakout from the bull flag often sees another increase in volume, although volume may not increase dramatically.
  • ETH formed a bearish flag pattern, having made a sharp sell-off from $200 to $160.

FOMO might drive a new trader to jump in on the move, hoping for a meteoric rise, while indecision on entry points might make them miss the move altogether. At this point the market has finished consolidating and is now trending in the original direction. Using the distance we calculated above for the flag pole, we now have a measured objective for a possible target.

You can find this on any chart period, but it is vital that the move is strong, and not a slow, steady rise over a longer period. Once you entry a Broker Definition And Example, the targets can be derived from many indicators. The initial targets on all flag patterns will be the high or low of the flagpole. If the flagpole price peak is exceeded, then you can use Bollinger Bands and or fib price levels. To get fib price level targets, first plot the high to low and low back to high price levels of the flagpole.

What are bull and bear flag patterns?

A “flag” is composed of an explosive strong price move that forms the flagpole, followed by an orderly and diagonally symmetrical pullback, which forms the flag. When the trendline resistance on the flag breaks, it triggers the next leg of the trend move and the stock proceeds ahead. What separates the flag from a typical breakout or breakdown is the pole formation representing almost a vertical and parabolic initial price move.

Often, the tighter flags perform best, and they also offer easier stop-loss levels. Bull flags usually resolve one way or the other in less than three weeks. Over longer periods, the pattern becomes a rectangle or triangle. Additionally, bear mt4 trailing stop eas should always be confirmed using other indicators, like the RSI.

Overall, both are bullish patterns that facilitate an extension of the uptrend. Many security price forecasters use technical analysis, sometimes referred to as charting. However, they opt to reject the efficient markets hypothesis altogether.


While the flag is not a perfect rectangle, what is more important is the basic premise behind the overall pattern. Note the strong rise in the stock as it forms the flag pole, and the tight consolidation that follows. Bulls are not waiting for better prices and are buying every chance they get. The best way to trade a bear flag pattern is to look for bearish signals in downtrends.

It is important that flags and pennants are preceded by a sharp advance or decline. Without a sharp move, the reliability of the formation becomes questionable and trading could carry added risk. Look for volume confirmation on the initial move, consolidation and resumption to augment the robustness of pattern identification. Cantel Medical Corp.’s price chart is an example that appears to have broken out from a bull flag pattern. The top of the flag was clearly defined near the $15 area and CMN was able to close above that level.

In a bear flag formation, traders will hope to see high or increasing volume into the flagpole . The increasing or higher than usual volume accompanying the downtrend , suggests an increased sell side enthusiasm for the security in question. Traders of a bull flag might wait for the price to break above the resistance of the consolidation to find long entry into the market.

We use the same GBP/USD daily chart to share simple tips on trading bullish flags. The breakout occurs once the buyers reassume control of the price action after a temporary pause in the uptrend. In both cases, a breakout occurs in a strong manner. After a series of the smaller candles, the buyers reassume control of the price action and break the upper trend line to the upside, which activates the bull fxprimus review. It’s constituted after the price action trades in a continuous uptrend, making the higher highs and higher lows.