Bull Flag Pattern: 6 Simple Steps To Trade Bull Pennants
A bullish pennant formation also follows a steep rise in the underlying asset price but may have converging trendlines when consolidating. The narrow trading range may become smaller and shaped like a triangle. As we mentioned above, you want a bull flag to put in a series of lower highs so that you can buy the breakout of the most recent candle’s lower high. After you buy the breakout, you then set your stop below the breakout candle. In this example, your target is set for the “resistance” area on the bigger picture chart shown above.
Technical analysis chat patterns have many such nuances, but it’s really not as complicated as it seems at first glance. 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. The bullish flag pattern is the direct opposite of the bear flag.
The upper trendline is formed by connecting lower highs, and the lower trendline is formed by connecting lower lows. TradingView has the tools to show its information in a variety of ways. You’ll have customization options like 14 chart types, 90+ drawing tools, and 100+ pre-built indicators. As an active trader, you spend hours each day looking at charts. You want them to be easy to read and to show what you want to see at a glance — especially if you have a multi-monitor setup.
In other words, there are more traders willing to buy the flag than sell it. A bull flag must have orderly characteristics to be considered a bull flag. There must be a series of lower highs and lower lows within the bull flag consolidation.
However, once volume recedes into the pullback, the bull flag will overcome the selling pressure and break this counter-trend consolidation. Depending on the wider context, price action, market structure, overall sentiment, etc., the new bearish pattern might even be a fake one. Additionally, some traders set a price target by measuring the height of the pattern and extending that distance upward from the breakout point. This pattern suggests that a very strong resistance has been broken and a new uptrend is likely to continue until the price finds a new strong resistance level. The Triple Top Breakout is a bullish reversal pattern that forms after a period of consolidation or range-bound trading.
Other similar chart continuation patterns like the bull flag are the bull pennant and the ascending triangle pattern. A breakout strategy aims to capitalize on a sudden, definitive move in price action. In the case of the bullish flag formation, this means that we are looking to buy into the market in anticipation of a robust extension of the existing uptrend.
- As a security’s price swings upward, as long as each swing low and high is higher than the previous one, the price is in an uptrend.
- In contrast, a bear flag is created by a downward trend followed by a flag-shaped consolidation.
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- The further prices fall, the greater the urgency remaining investors feel to take action.
- A flag chart pattern is formed when the market consolidates in a narrow range after a sharp…
Simply stated, bullish patterns are among the highest probability signals that an asset’s price will start ticking upward. The length of the exit line from a downward consolidation phase is proportionate to the length of the flagpole. In our example, we would have missed a great opportunity if we would have waited for a pullback to enter a trade.
Triple Bottom Pattern: Is it Bullish Or Bearish?
Before we get started, it’s important to emphasize that bull flag patterns apply to uptrends. So, our trading strategies are designed to engage the “buy” or “long” side of the market. This objective is the polar opposite of what bearish flags suggest. Prices consolidated in a gently downward sloping channel (blue). To trade the flag, traders can time an entry at the lower end of the price channel or wait for a break above the upper channel (yellow). Traders then look to take profits by projecting the length of the flag pole preceding the flag (black dotted line).
A bull pennant is a bullish continuation pattern signaling an extension of the uptrend when the consolidation is over. In this type of pattern, resistance levels in the flag formation generally remain as high as the flag pole. Support bullish flags levels at the bottom may ascend to create a triangle which we have already established as a pennant. The flat-top breakout tends to be a favorite amongst traders since it doesn’t pose any substantial pullback in the price trend.
How to Trade the Head and Shoulders Pattern
The pattern is completed when the price breaks out of the pennant area and continues upwards. Traders typically enter a trade when the price breaks out above the resistance line of the handle, or for more confirmation, after the price breaks out of the cup’s top. The pattern is confirmed when the price breaks out of the handle’s resistance line. The pattern is confirmed when the price breaks out above the resistance line. Once again, you can use a volume indicator for additional confirmation.
Three bars breaking a trend
For all you know, the bull flag pattern is formed in an existing downtrend. Upon the flag forming a significant multi-candle consolidation phase, an entry point is located above the upper bounds of the flag. After an increase in volume is confirmed, a buy order is placed above the flag. This is the opposite of a bear flag pattern, which focuses on downtrends.
There are certain bullish patterns, such as the bull flag pattern, double bottom pattern, and the ascending triangle pattern, that are largely considered the best. Understanding these top bullish patterns can give you an edge in the market by informing your entry positions, and helping you set appropriate price targets. The shape of the flag is not as important as the underlying psychology behind the pattern. Basically, despite a strong vertical rally, the stock refuses to drop appreciably, as bulls snap up any shares they can get. The breakout from a flag often results in a powerful move higher, measuring the length of the prior flag pole.
Stock Chart Patterns: How to Read Trading Chart Patterns
As a result, the AUD performed well against most other currencies in part because it offers a higher rate of return owing to its interest rate. Hence, traders have a fundamental back drop to support the technical picture for additional strength in AUD. Here are a few more examples of intraday bull flag patterns that work. Notice how each one appears clean and orderly no matter the time frame of the chart. Then, during the flag formation, we get the pullback on lower volume and tighter range red candles.