Bull flag and bear flag chart patterns explained

Bull flag and bear flag chart patterns explained

Shaun Murison  | Aug 20, 2019 06:28

Bull and bear flag formations are price patterns which occur frequently across varying time frames in financial markets. These patterns are considered continuation patterns in technical analysis terms, as they have a habit of occurring before the trend which preceded their formation is continued.

In this article, we look at how to identify and trade these patterns by looking for entries and exits through breakouts, proportionate targets, failure levels and volume confirmations

The anatomy of a flag formation

Flag pattern formation

A flag pattern is highlighted from a strong directional move, followed by a slow counter trend move. The above chart highlights a bull flag.

The strong directional move up is known as the ‘flagpole’, while the slow counter trend move lower is what is referred to as the ‘flag’.

A bullish flag formation

Bullish flag formation 1

In an uptrend a bull flag will highlight a slow consolidation lower after an aggressive move higher. This suggests more buying enthusiasm on the move up than on the move down and alludes to the momentum as remaining positive for the security in question.

Bullish flag formation breakout

Traders of a bull flag might wait for the price to break above the resistance of the consolidation to find long entry into the market. The breakout suggests the trend which preceded its formation is now being continued.

Bullish flag formation 2

A trading target from the breakout is often derived by measuring the height of the preceding trend (flagpole) and projecting a proportionate distance from the breakout level.

Bullish flag risk management

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.

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Shaun Murison

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Mmatshepo Masinamela
Mmatshepo Masinamela

Very informative, thanks   ... (Read More)

Aug 21, 2019 03:41 GMT· Reply
Mondli Banda
Mondli Banda

much appreciated Shaun  ... (Read More)

Aug 20, 2019 10:36 GMT· Reply
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