bull flag trading strategy: What is a Bull Chart Pattern in Crypto and How to Identify One


In terms of managing risk, a price move above the resistance of the flag formation may be used as the stop-loss or failure level. In terms of managing risk, a price move below the support of the flag formation may be used as the stop-loss or failure level. A breakout is when the price moves above a resistance level or moves below a support level.

bull flag chart
bullish flag formation

It can be a simple way to enter on breakouts with lower risk. There are a few variations on the classic bull flag pattern. They all feature strong momentum followed by a consolidation period. But they’re different enough to have their own categories. It is completely up to the trader when they want to sell. However, they should keep an eye out if the price breaks out of the consolidation range to the downside.

Strategy 2: Bull Flag and Trading Volumes

If the price moves in your favor, then trail your stop loss with the 50-period Moving Average. If the price breaks above the swing high, go long with stop loss 1 ATR below the low of the Bull Flag. In such market conditions, there is a lot of “meat” for the trend to continue and the only way to ride it is to trail your stop loss. You don’t want to set your stop loss at obvious levels like Support & Resistance, swing high & lows, and etc. There are times a Bull Flag Pattern can form when the market is in range, at Resistance. In my experience, the best time to trade the Bull Flag Pattern is when it occurs just after a breakout.

Investors in the bull flag trading strategy market often depend on technical analysis to forecast future price trends. A technical analysis chart pattern called the ‘bull flag pattern’ indicates that an asset’s value is about to increase. Traders of bull and bear flag patterns might hope to see the breakout accompanied by a high-volume bar. A high-volume bar to accompany the breakout, suggests a strong force in the move which shifts the price out of consolidation and into a renewed trend.

One of them is to have a pre-determined profit target based on length of flag pole. Well, it’s a term I coined when the market breaks out of a range and then does a pullback for the first time. The ending point of the pasted trend line signals a level where we should consider taking our profits off the table.

Bull Flag Pattern Trading

Instead, it squeezes and forces shorts to cover. Longs also jump in when they see the stock rallying further. A line connects the peaks of all the rally candles that form the flagpole. After the strong move higher, the market becomes overbought so the market needs to take a “rest”. Here’s where you can expect a potential Bull Flag to form. A small break before the market continues moving in the same direction.

  • In the example above, you can see the line drawn out on the bottom of the flag pattern.
  • We use the same GBP/USD daily chart to share simple tips on trading bullish flags.
  • Then you want a tight consolidation where the price begins to move downward or countertrend on lower volume.
  • We do not track the typical results of our past or current customers.
  • However, it is important to understand that not all Flags are equal, and before you trade that pattern, you might want to get familiar with its important nuances of it.
  • The bull flag pattern is great for newer traders.

https://g-markets.net/ typically does not decline during the consolidation period as downward trends are often a vicious cycle driven by investor fear over falling prices. As such, the volume is upwards as the remaining investors feel compelled to take action. A trader’s investment goals and their execution of trading strategies determine whether they get rewards or losses. The bull flag pattern is commonly used by traders as it shows the presence of a strong uptrend. With this pattern, traders who missed the initial surge of a cryptocurrency’s upward movement can still profit.

The psychology behind Bull Flag

Recently, we discussed the general history of candlesticks and their patterns in a prior post. We also have a great tutorial on the most reliable bullish patterns. This is a great lesson on managing risk and respecting your stops.

  • A sharp uptrend should always precede the pattern followed by a correction.
  • The pennant is another variation of the bull flag.
  • So as soon as they see a stock’s price dip a little, they jump in and buy shares.
  • When they’re done buying the needed shares, the price will push higher, break the flag pattern again, and most likely will continue the up trend.
  • To buy a pullback using bull flags, it’s a good idea to incorporate another technical analysis tool.

But keep in mind that like any stock pattern, a bull flag can fool you. If there’s a negative catalyst about the company, the breakout you’re expecting may not happen. To maintain the trend, the cryptocurrency breaks out of the consolidation pattern at a relatively solid volume. To measure the Take-Profit target of the bull flag, you need to count the distance between the start of the trend and the correction. This distance should be counted from the breakout of the upper boundary of the bull flag.

The simple bull flag guidelines here accommodate a wide range of continuation patterns. Hence, they provide plenty of opportunities for closer analysis. The more confident you are of the bullish bias, the more likely you would trade a bull flag breakout. Here is a BTCUSD example showing two instances of the bull flag chart pattern.

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Your exit target is the length of the flagpole added to the bottom of the flag. On a heavily shorted stock, the dip is due to longs locking in profits and shorts shorting more. Place stop orders below the bottom of the consolidation pattern. But it’s just as easy to lose control of your trade management process and end up with a net loss. But regardless of which length you use to project the target, the market would have fallen short.

Bull Flag Pattern in Trading. Open Long Trades

Consider using a Libertex demo account that allows traders to practise without any risk for their funds. The account provides real-time trading conditions and a wide range of CFDs trading underlying assets. The bull flag isn’t a difficult pattern that can occur at any time and for any asset. It provides a signal of the uptrend’s continuation. The bull flag is a well-known pattern worldwide. If the trading volumes rise after the correction and the price breaks above the bull flag’s upper boundary, it’s a sign of the trend’s continuation.

pattern to form

However, following a bull flag pattern is not a completely risk-free crypto trading strategy. Any trading market involves risk, and in the comparatively volatile crypto markets, the most significant risks are instability and unexpected price swings. The bull flag chart pattern is a short-term trend and may last anywhere from one to six weeks. If a trader can identify a bull flag chart pattern precisely, he can forecast the upcoming bull trend and leverage it to make profits. After the uptrend, the price will typically enter a period of consolidation or sideways price action. This is often characterized by a narrow range and lower volume and is referred to as the „flag“ portion of the pattern.

By using indicators like Fibonnaci extensions and retracement… This would give us confidence, not only that the move might not be finished, but also as to where our target could be set. A pennant is a symmetrical triangle that is formed in a horizontal consolidation pattern. As the pennant narrows into its apex, it can be difficult to determine which direction it will resolve.

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