Bull Flag Pattern Trading Strategy: Easily Trade Up-Trends

At Trading Strategy Guides we really love the idea of having different chart patterns in you’re trader toolbox. Whether advanced price patterns or simpler ones that pretty much everyone has heard of (like what we’re going to talk about in this article), namely the bull flag pattern.

What is a bull flag pattern? The bull flag pattern is essentially just a continuation pattern, after a pause, consolidation or slight pullback in the market, after an especially strong move.

We feel this is the best Bull Flag pattern trading strategy because you won’t be forced to catch tops or bottoms, which can be like catching a falling knife. We’re not trying to be biased, we really believe that if you implement this bull flag pattern strategy, and follow your rules, you will find trading success.

If you’re looking for a more conservative approach to spot tops and bottoms by using the following reversal trading strategy: Parabolic SAR Moving Average Trading Strategy.

The Flag Trading Pattern is one of the easiest to help you build your trading skills. Share on X

Before we begin, thanks for visiting Trading Strategy Guides (TSG)! We are so glad you’ve found us. You have discovered to the most extensive library of trading content on the internet. Our aim is to provide the best educational content for traders of all stages. In other words, we want to make YOU a consistent and profitable trader.

Let’s begin learning the best bull flag chart pattern trading strategy, shall we?

Bull Flag Patterns Explained

As we already mentioned briefly, a bull flag pattern is really just a bullish continuation pattern. That’s a simple explanation, but there’s a lot going on behind the scenes. Let’s look at a fun example.

Supply and Demand

Any time we analyze the psychology of a particular chart pattern, it’s useful to understand the effects of supply and demand of a given market. Let’s take a look at an example of how supply and demand could cause price shoot up really quickly.

Have you ever heard of The Running of the Bulls? I’m sure most of you have, but for the sake of this example, let me show you how it explains supply and demand.

How Running of The Bulls Explains Supply and demand

Once a year, in Spain, thousands of people gather in a town called Pamplona. A herd of bulls, are released to run through a nearly 1000 meter stretch of the city streets.

These aren’t just random bulls that are released, or nice friendly bulls (sorry, no Ferdinands allowed). These are fighting bulls! These are the types of bulls that won’t hesitate to flip you twenty feet in the air with their horns.

Contestants line the streets and attempt to lead the way for the bulls as they make their way to their final destinations.

As you can imagine there’s a lot of carnage, making this quite the spectacle. But how does this relate to supply and demand?

Imagine being one person, standing in the middle of the road and trying to stop those bulls in their tracks, or better yet, trying to chase them to go the opposite direction.

I can see you laughing right now, you’re probably thinking, that person would have to be a complete dummy to try and stop a herd of bulls by themselves. And you’d be right.

The truth is that this is very similar to the way supply and demand moves price in a bull flag.

Maybe a company had a good earnings report, or a new drug was approved, or a news event moved the needle. Whatever the event may be, it’s bringing in a flood of buyers to the market. The bulls represent the buyers en masse, coming in full force, excited, and confident in their buying decision.

The price is the contestants running ahead of the bulls through the city streets.

The consolidation period is when the bulls are led to their destination which is a pen that they cannot escape until they are let out again for the next run.

Bull Flag Pattern Characteristics

The bull flag pattern is a chart pattern that can be tracked from any time frame, from 1-Minute charts to 1-Month.

It’s not a coincidence that the bullish flag pattern resembles a national flag after all; the name was inspired by the similarities with the national flag.

The bullish flag pattern is constructed in two parts:

•         A strong and sustained rally.
•         Followed by a tight range that slowly drifts lower to form the flag portion of the bullish flag pattern. Another characteristic of this tight range is that it should be contained within two parallel lines.

If you’re still confused then please have a look at the chart below:

Not only that the bullish flag pattern is a very simple technical indicator, but it can lead to moves that are of the same magnitude as the flag pole movement. In the next section, you’ll learn how to trade bullish flag pattern and how one should trade the best flag pattern strat egy.

Step one: Identify Pattern

How to trade the bullish Flag pattern is as simple as the bullish flag pattern itself. Since this is a continuation pattern we want to trade in the direction of the prevailing trend. So, as the name suggests – bullish Flag pattern – we should expect a bullish move to come out of this pattern. We also have training for building a foundation before a forex strategy matters.

In this case, we want to enter when we break above the upper flag “border” or above the top of the flag pole.

Again, remember this is a continuation pattern.

If you’re just getting used to the bullish flag pattern, just zoom out a little bit on your chart because it can make a really big difference. Zooming out your charts you will be able to spot the bullish flag pattern much faster.

Let’s now get straight into the buying rules for the best Flag pattern strategy.

The Best Flag Pattern Strategy

(Buy Rules)

Step #1: Zoom out Your Charts and Mark on the Consolidation Zone – The Flag – of the Bullish Flag Pattern

We recommend all the time to play with the charts and zoom out so you can better identify the bullish flag pattern. Following this step, it will also make it visually a little bit easier to plan your next move.

This step is quite important to be done, otherwise, you won’t be able to identify when the next movement will happen.

Most trading platforms come with a technical tool that can help you draw a parallel channel and highlight the flag pattern. On the TradingView platform, our preferred trading platform, the channel tool is located on the right hand-side panel:

Next, we need to figure out where we need to get into the trade, which brings us to the next step of the best Flag pattern strategy.

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Step #2 Enter Long Position at the Break of the Flag Pattern

We have got a really solid looking setup here that follows exactly the rules highlighted in the Bullish Flag Pattern Explained. So, now we can safely enter at the immediate breakout above the flag.

Note* You can now safely zoom in so you can better manage your trades as we already identified the bullish flag pattern.

Alternatively, you can wait for a breakout and only enter after a pullback that retests the flag. This is a more conservative approach. However, there is a big risk with this type of chart patterns that you won’t see any pullback once the breakout happens.

In our example, we would have missed a great opportunity if we would have waited for a pullback to enter a trade. Most of the time we’re going to get a really big volume burst out the moment the breakout happens, which will make it harder for a pullback to develop.

You’re right if you think this looks more or less like a breakout strategy and if you want to learn some tips and tricks on how professional traders use breakout strategies please read our insights here: Breakout Trading Strategy Used by Professional Traders.

Now that we’re in a trade we need to find our target, which brings us to the next step of the best Flag pattern strategy.

Step #3 Take Profit Once the Price Travels the same Distance in Price it did in the Flag Pole.

Now that we’re in a trade we need to establish our profit targets. The way we’re going to find our profit target is quite intuitive. First, we measure the distance the price traveled from the starting point of the bullish flag pattern to the flag and project that move to the upside.

TradingView comes with a very handy tool called “Measure” which will allow you to quickly measure how big the Flag pole was:

Alternatively, if you’re an MT4 trader, if you don’t want to count on hand, you can simply use the Fibonacci indicator and set your target at the 100% Fibonacci ratio.

We can see that we have a good profit target of approximately 262 pips and if we measure the same amount from the breakout point and project it to the upside we get our profit target.

Now that we have a good understanding of where to take profits, there is still one more thing left that we need to take care of, which brings to the next step of the best Flag pattern strategy.

Step #4 Place the Protective Stop Loss below the Flag

The protective stop loss is generally placed below the lower Flag “boarder” or below the bottom of the consolidation zone. A break below the flag will automatically invalidate the bullish flag pattern structure. This is quite obvious because the flag structure won’t look any more like a flag.

Note** The above was an example of a buy trade… For a sell trade we need to trade the “cousin” pattern of a bullish flag pattern which is the Bearish flag pattern. Use the same rules – but in reverse – for a sell trade.

Bearish Flag Pattern – USD/JPY

Conclusion: Bull Flag Chart Pattern Trading Strategy

You should now know how to trade the bullish flag pattern like a professional trader. This is a very simple price pattern if not one of the simple pattern you’ll ever encounter, but the bullish flag pattern is one of the most powerful technical patterns out there. We also have training for a Million USD Forex Strategy

When you’re able to tighten your stop loss at the levels the bullish flag pattern allows you to do you know you’re on the right path. But, not only that, your profit potential is multiple return of your risk. In essence, you risk a little to gain a lot more which is the thing that most traders should strive for. 

Before you sign out, make sure you also read our 2 Keys to Success to further enhance your trading experience.

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.

Traders can use the bullish flag pattern to identify potential trend continuation opportunities by entering a long position after the breakout. However, traders should exercise caution and wait for confirmation of the breakout to reduce the risk of false breakouts. Additionally, traders should use other technical indicators and market trends to confirm their trading decisions.

When trading the bullish flag pattern, risk management strategies such as stop-loss orders should be implemented to limit potential losses. Traders should also set realistic profit targets based on the size of the flagpole to maximize their profits.

Overall, the bullish flag pattern is a reliable and profitable chart pattern that can provide traders with a competitive edge in the stock market. By understanding its key characteristics and following the guidelines outlined in this article, traders can increase their chances of success and maximize their profits.

Please leave a comment below if you have any questions about the Bullish Flag Pattern!

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Bullish Flag Pattern Video

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Bull Flag Pattern Trading Strategy Infographic/PDF

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