Bull flag

A bull flag is an upward continuation pattern which is creating forms in the context of an existing uptrend. This model is called the bull flag because of appearance which looks like the flag at the top of a flagpole. That pattern is a short-term price pattern which moves counter (against) both:

• the intermediate-term and
• long-term trends.

That means that price is drawing back in a short-term downtrend versus the long-term and intermediate uptrend. As the stock draws back, a trader merely watches for it to find support and afterward bounce. To be considered an important bull flag, the price has to first perform a higher high in the trend. Later the higher high after formed the price pulls back and creating a higher low (this pullback is generally two to five days).

Bull Flag development

Flags are noticed at the midpoint of progress in the market and are a short-term pattern for the most part. Usually, it takes between one and three weeks to expand, although this might change. The bull flag starts to unfold after an advance in price action. Commonly it is a very steep advance, where the price progress is fast, leaving a characteristic series of virtually vertical price movements on the chart. The day to day standard type candlestick which opens near the closes and the lows near the highs might be seen clearly through the forming of the flag pole. The chart with nearly no candlesticks that have shadows, is a sign of the market that is confident. The flag is created when price consolidates and stops its advance. The price action has tended to decline but the two lines have to contain the lows and highs in a slightly downward angle, forming a parallelogram which is little opposing the recent bullish activity.

Bear flags

This is the same as the bull flag, only with bearish implications. The pattern is helpful because it is possible to measure up the flag pole and application it as a possible price goal upon a break out from the consolidation period. The best is confirmation with the flag pattern through watching for the flash to expand and then waiting for the break out to.

Bull symmetrical triangle

This patterns signal consist of at least five points of contact with the converging lines. The value breaks out before the apex is received. As a rough guide, the break out takes places two-thirds of the way upon the pattern. Hoewer it will be different according to market conditions. In extreme circumstances that price might return to the apex.

Examples of Bull flag

• Bull flag patterns are a commonly seen in the stock market, where they often form as a continuation of an uptrend. For example, if a stock is in a strong uptrend and then begins to consolidate in a range, it could be forming a bull flag. The flag is typically composed of a series of higher highs and higher lows, which suggests that the uptrend is likely to continue once the flag is broken.
• A bull flag can also be seen in the currency market. For example, if the US Dollar is in a strong uptrend against the Japanese Yen and then begins to consolidate in a range, it could be forming a bull flag. The flag is typically composed of a series of higher highs and higher lows, which suggests that the uptrend is likely to continue once the flag is broken.
• In the futures market, bull flags can also be seen. For example, if a futures contract is in a strong uptrend and then begins to consolidate in a range, it could be forming a bull flag. The flag is typically composed of a series of higher highs and higher lows, which suggests that the uptrend is likely to continue once the flag is broken.
• Bull flags can also be seen in the cryptocurrency market. For example, if a cryptocurrency is in a strong uptrend and then begins to consolidate in a range, it could be forming a bull flag. The flag is typically composed of a series of higher highs and higher lows, which suggests that the uptrend is likely to continue once the flag is broken.

Advantages of Bull flag

The bull flag is a continuation pattern that allows traders to capitalize on an existing uptrend. The following are some of the advantages of trading with a bull flag:

• It offers a high probability of success - Bull flag patterns typically have a high success rate, as they occur in the context of an already established trend, which allows traders to capitalize on an existing uptrend.
• It provides an opportunity for quick profits - Bull flags tend to be short-term patterns, which can offer traders the opportunity to make quick profits in a relatively short period of time.
• It is easy to identify - Bull flag patterns are relatively easy to spot, as they are typically characterized by a sharp price move followed by a period of consolidation.
• It provides a low-risk entry point - Since the pattern occurs in the context of an uptrend, traders can enter the position at a low risk, since they are entering after the trend has already been established and the risk of a reversal is relatively low.

Limitations of Bull flag

The bull flag is a short-term price pattern which moves counter (against) both the existing trend and the current market sentiment. However, this pattern is not without its limitations and should be taken into account when trading with it. The following are some of the limitations of the bull flag:

• The bull flag is not a guarantee of a successful trade and can be affected by market movements, resulting in unpredictable losses.
• The bull flag is a short-term pattern and requires close monitoring to ensure that the price action follows the expected direction.
• The pattern may be difficult to identify in certain markets, making it difficult for traders to make an accurate prediction.
• The pattern may be subject to false breakouts, which can result in losses for the trader.
• The pattern may be subject to misinterpretation, as the pattern may be interpreted differently by different traders.

Other approaches related to Bull flag

The Bull Flag is a technical analysis chart pattern that is used to identify possible opportunities to enter the market. As such, there are several other approaches that are related to the Bull Flag that can be used to further support an investor’s decision to enter a trade. These include:

• Moving Average Convergence/Divergence (MACD): This is a technical indicator that uses the relationship between two moving averages to measure momentum and determine the strength of the trend.
• Parabolic Stop and Reverse (PSAR): This is a trend-following momentum indicator that uses the highs and lows of the price to determine the direction of the trend and identify potential points of entry.
• Relative Strength Index (RSI): This is a momentum oscillator that measures the speed and magnitude of price movements. It is used to identify potential overbought and oversold levels.
• Stochastic Oscillator: This is a momentum oscillator that is used to identify overbought and oversold levels. It also helps traders determine potential points of entry for a trade.

In summary, the Bull Flag is a technical analysis chart pattern that can be used to identify potential points of entry. There are several other approaches related to the Bull Flag, such as the Moving Average Convergence/Divergence, Parabolic Stop and Reverse, Relative Strength Index, and Stochastic Oscillator, which can be used to further support an investor’s decision to enter a trade.

Footnotes

Bull flag — recommended articles

Uptrend — Bullish divergence — Bear flag — Symmetrical triangle — Dragonfly Doji — Chande Momentum Oscillator — Bearish divergence — Osma — Three Black Crows

References

• Burgess G.A., (2010)., Trading and Investing in the Forex Markets Using Chart Techniques, John Wiley and Sons
• Brooks A., (2011)., Trading Price Action Trading Ranges, Technical Analysis of Price Charts Bar by Bar for the Serious Trader, John Wiley and Sons
• Moore J., (2018)., Trading Part-Time, How to Trade the Stock Market Part-Time, Xlibris Corporation
• Swope R., Howell W. S., (2012)., Trading by Numbers: Scoring Strategies for Every Market, John Wiley and Sons

Author: Jakub Postawa