These patterns form when the price of a stock or asset moves counter in the short-term from the predominant long-term trend. Flag patterns are used to forecast the continuation of the short-term trend from a point in which the price has consolidated. Depending on the trend right before the formation of a shape, flags can be both bullish and bearish.

  • A bull flag fails or is invalidated once it breaks the low of the breakout candle.
  • Finally, there is a break to the upside, which takes the price action aggressively higher.
  • Consequently, many traders use other indicators to confirm the direction of the trend before entering a trade based on a bull flag pattern.
  • Alternatively, to measure manually, use an arithmetic chart and plot the length of the flag pole.

The flag is tight, with buyers and sellers in a close-fought battle for days. At last, the buying pressure is so strong that the price breaks upwards and averages a 39% rally. Two decades of research by Tom Bulkowski growth investing show that after a bull flag pattern is confirmed on a breakout, there is an 85% probability of a 39% price increase. Once the bull flag pattern is confirmed, traders should consider opening a long position.

Instead of a rectangular outline of the flag, the pennant consolidates the stock in what looks like a triangle with the top line descending and the bottom line ascending. This means that the support and resistance levels will not be trading at equal distance levels but instead converge in a smaller trading window before having a breakout. While no one knows whether the market rally will continue or reverse, traders should follow price action and let the probabilities take care of the rest. While all chart patterns are susceptible to false signals and surprise moves, bullish flags are among the most reliable and effective patterns.

A bull flag pattern consists of a larger bullish candlestick that forms the flag pole. It’s then followed by at least three smaller consolidation candles, forming the flag. You will see many bull flag patterns that consolidate near support levels than when support holds; price action breaks out of the flag. The bull flag pattern is one of the most common patterns on charts. Bull and bear flag formations are price patterns which occur frequently across varying time frames in financial markets.


It shows a clear flagpole, a flag, and the following uptrend. The price consolidated for a short while but managed to begin rising again, completing the bull flag pattern. A bull flag pattern aids in locating the places that require correction before the prior trend resumes. This chart pattern requires the presence of the previous momentum, which is typically shown by a string of consecutively bullish bars to the upside. Usually, there is a surge in volume as the stock builds the flag pole.

  • Over longer periods, the pattern becomes a rectangle or triangle.
  • Tom Bulkowski’s research confirms an accuracy of 85 percent for high-tight bull flag patterns with an average profit potential of 39 percent.
  • Ideally you’d like to see price continue and break above the top of flag pole.
  • Our chat rooms will provide you with an opportunity to learn how to trade stocks, options, and futures.

The pattern occurs in an uptrend wherein a stock pauses for a time, pulls back to some degree, and then resumes the uptrend. While the trading could create a ‘W’, that may not always be the case. The top and bottom lines of the flag have a parallel downward trend until the stock sees a breakout to the upside. This is probably the most common variant of the bull flag pattern.

Bull flags typically begin to surface in conjunction with a new market rally. A high-tight bull flag pattern is a good signal for where to day trade cryptocurrency traders. It provides an easy and accurate way to identify potential buying opportunities creating high-probability trades.

Failed Bear Flag

The pattern formed by inverting the bull flag stock pattern is called the bear flag stock pattern. If a trader has decided to buy as soon as the price rises out of the flag area, the next question is best forex system when should they sell. Like other trading decisions, this will likely depend on more than just stock patterns. That said, a common profit target is the base of the flag plus the height of the pole.

What Are the Key Differences Between Bull Flag and Bear Flag Patterns?

That’s followed by a consolidation period where volume drops off substantially and the stock pulls back. A line connects the peaks of all the rally candles that form the flagpole. 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. A bull flag and a pennant can both resolve in the upward direction.

Bull Flag vs Bullish Pennant

A bull flag is a chart pattern often used in technical analysis and trading to identify a bullish continuation. It occurs when a stock or other security trades in a sideways range after an advance and then breaks out above the resistance level, creating a strong uptrend. There are a few key points to look for when identifying a bull flag formation. First, the pole should be formed by a strong uptrend with consistent price movements higher.

There has been a lot written about bull flags, but academic research into flag patterns suggests that only one flag is successful. Learn how to identify and use the high-tight flag in your trading. Bullish and bearish flags are important continuation patterns you can use in the market today.

The criteria always remain the same, whether you are trading a 1-minute chart or a daily chart. The only difference is the patience it takes to allow the pattern to develop. In this example you have AMC breaking out of its prior trading range on increased volume. Nonetheless, for a pennant pattern to be bullish, you want it to have similar characteristics to a bull flag with regard to volume.

Moreover, as discussed above, the signals to identify bullish pattern trends and the procedure to spot them involve simple steps. The break of the flag, which occurs in the third stage of the bull flag pattern, offers the optimal entry signal. The previous swing high will serve as the initial profit objective for the bullish flag pattern, and the consolidation structure might serve as the stop-loss level.

A bull flag will most often have a downward trajectory instead of a horizontal and level consolidation. However, once the stock has had a chance to pull back and consolidate, the bull flag should produce a breakout, allowing the stock to resume its prior momentum. 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.

There are many options for protecting this type of trade with a stop loss. Longer-term traders often set their stops below the entire flag, and other traders employ tighter stops such as a two-bar stop. Finally, I suggest using a tight trailing stop loss such as the 20-period moving average.

The first step in identifying the bullish flag pattern is to recognize an upward trend (i.e., the flagpole). Flag formations are all quite similar when they appear and tend to also show up in similar situations in an existing trend. Unlike a bullish flag, in a bearish flag pattern, the volume does not always decline during the consolidation. The reason for this is that bearish, downward trending price moves are usually driven by investor fear and anxiety over falling prices. The further prices fall, the greater the urgency remaining investors feel to take action.

While there is no definitive answer to this question, most traders agree that the pattern is more reliable when it forms during an uptrend. Consequently, many traders use other indicators to confirm the direction of the trend before entering a trade based on a bull flag pattern. The bull flag formation is a technical analysis pattern that resembles a flag.