At the same time, traders with a short position will often buy to cut their losses. But if you know what to look for, and how to gauge your entry and exit points, you can use bull flag trading to increase your chances of success. To learn strong entry and exit points and get involved in our trading community, apply for my Trading Challenge. Hedera (HBAR) was one of the top-performing cryptocurrencies in the final quarter of 2024, gaining significant attention with its upward momentum. U.S. Government Required Disclaimer – Commodity Futures Trading Commission.

• This is because the prices of the underlying asset consolidate well above their previous holding levels after a sharp rise.
• The American Electric Power Company (AEP) chart (above) shows a high-tight bull flag.
• Volume usually increases in the pole and then declines in the consolidation.

As the bull flag pattern concludes and the price breaks above the flag’s upper boundary, an increase in volume should be evident. This spike in volume signals the buyers regaining control, likely leading to a continuation of the uptrend. A breakout with significant volume increase lends credibility to the bull flag, whereas a breakout lacking volume support may indicate a lack of conviction and a potential false signal.

What Timeframe Price Charts Do Bear Flag Patterns Form On?

However, there is a possibility of an upside breakout, which invalidates the pattern. This scenario indicates that the bear flag pattern has been invalidated rather than turning it into a bullish pattern. The volume typically declines during consolidation, but there’s a sharp volume increase on the downward breakout. The bull flag, on the other hand, forms in an uptrend, where you would see a price rise followed by consolidation and when is a bull flag invalidated then the breakout to continue the uptrend.

Trading the bull flag is more reliable when it forms in the upper half of the flagpole. Therefore, common retracement levels that may provide support are the 23.6% or 38.2% Fibonacci retracement zones. Liberated Stock Trader, founded in 2009, is committed to providing unbiased investing education through high-quality courses and books. We perform original research and testing on charts, indicators, patterns, strategies, and tools.

When the downtrend resumes, the next price drop could be rapid, making the timing of a trade advantageous by noticing the bear flag pattern. A bull flag pattern high timeframe example is illustrated on the monthly stock chart of Apple stock (AAPL) above. The Apple stock price intially moves in a bull trend over multiple months which forms the flagpole. The price starts a consolidation period over 14 months which forms the flag component.

How To Identify a Bull Flag Pattern

In the Bitcoin chart above, the price has formed a flagpole followed by an upward retracement inside a rising parallel channel. Eventually, BTC price breaks out of the channel range to the downside and drops by as much as the flagpole’s height. These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

• This bear flag occurred on a longer timeframe than the previous bull flag – across multiple weeks.
• If the price breaks above the flag instead of down, it can invalidate the pattern and indicate potential bullish movement.
• Whether you’re looking at the stock market, the forex market, or the crypto market, Bull Flags appear regularly.
• This light trading may suggest hesitancy on the part of investors, potentially setting the stock up for a failed bull flag.
• They might make a small new high before consolidating more.

Flagpole and flag formation

As for the upside target, a bull flag breakout typically prompts the price to rise by as much as the flagpole’s size when measured from the flag’s bottom. As a result, analysts view strong volumes as a sign of a successful bull flag breakout. Classically, a bull flag is assumed to be bullish in nature. This is because the prices of the underlying asset consolidate well above their previous holding levels after a sharp rise. The emergence of a Bullish Flag often follows a period of intense buying activity that forms the flagpole.

Trading 101

Next, watch for a tight consolidation period lasting several days. When buying pressure builds up enough, the price breaks out upwards. Higher volume during the flagpole and breakout can confirm the pattern’s strength. They might make a small new high before consolidating more. Bear flags typically lead to a 9% price move after a breakout.

The success of a bear flag can be greater after a significant downside move due to the possible increase of overhead resistance. Furthermore, when the swing low that begins the pattern is also an all-time low, the price drop is also very huge due to the possible lack of underlying support. Websites to learn about bull flags are Bapital.com, Investopedia.com, and Stockcharts.com. This is evidence of the bull flags reliability in capital markets. Thirdly, draw a lower boundary parallel downward sloping trend line from left to right that connects the swing low points together.

This is trailed by a slight upward or horizontal consolidation, referred to as the flag. This consolidation typically slopes slightly upwards, resembling a small rising channel. During its formation trading volume usually declines, then increases notably when the price pushes downwards from the flag.

TrendSpider enables bull flag scanning, backtesting, and strategy development. Finviz enables quick and easy bull flag scanning and charting. The inverse head and shoulders takes the crown as the most robust bullish pattern.

The breakout from a flag often results in a powerful move higher, measuring the length of the prior flag pole. It is important to note that these patterns work the same in reverse and are known as bear flags and pennants. Bull flags typically begin to surface in conjunction with a new market rally. Bull Flags and Bear Flags are continuation price chart patterns in technical analysis. It allows traders to forecast the direction of the trend after consolidations, where, depending on the underlying trend, Flags can be Bearish or Bullish.