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  • “Alternative assets,” as the term is used at Public, are equity securities that have been issued pursuant to Regulation A of the Securities Act of 1933 (as amended) (“Regulation A”).
  • Volume then tapers off precipitously as the stock price consolidates.
  • With this strategy, your technical analysis skills will be tested.
  • After you buy the breakout, you then set your stop below the breakout candle.

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Harmonic Patterns in Stock Trading for Beginners

Bull flags are happy little patterns that show the bulls are in control. To see them all, you must be like an athlete who spends hours studying their forex trading group opponent. They train to better themselves, and just the same, traders need to study these patterns so they are ready when they step in the ring.

Ideally you’d like to see price continue and break above the top of flag pole. The flag forms the top part of the pattern, while the pole forms the bottom part. The pattern is considered to be bullish, as it typically forms during an uptrend. However, some traders believe that the pattern is not reliable, as it can occasionally form during a downtrend.

  • Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable.
  • None of these entities provide legal, tax, or accounting advice.
  • Third, the flag pattern is easy to identify and use in the financial market.
  • Once the filter has been applied, traders can then view the results on a chart interface.
  • In this article we look at how to trade these opportunities.

With most bear flag patterns, the volume increases when the pole is being formed, then remains at its new level. Volume typically does not decline during the consolidation period range bound market 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.

Strategy #1: Bull flag trend continuation strategy

When a bullish pennant forms, it usually sends a signal that the price will likely break out higher. As you can see, the bull flag pattern has three key features. Second, it has a consolidation phase, as bulls and bears battle it out. In most cases, this usually happens during a period of low volume. A bull flag breakout happens when a large bullish candlestick forms a flag pole with consolidation candles that pull back near support levels. When a bullish candlestick breaks above the consolidation of a flag then that’s when a potential breakout is occurring.

How to exit your winners when trading the Bull Flag Pattern

The bull flag pattern is probably one of the first chart patterns you’ve learned. Traders should remember that there is still a 15 percent false signal risk. A high tight bull flag is a good reliable pattern with an 85% success rate and a 39% average increase. Do not trade loose bull flags, they have a 55% failure rate, and even if they succeed, they only average a 9% price increase. A high-tight flag is a bullish pattern where buyers bid up the stock in a vertical direction, even at high levels.

What is the meaning of a Bull Flag Pattern and how does it work

Trading volume is an additional key element in identifying a bull flag pattern. The bull flag is interpreted as a stronger trend continuation signal when its formation includes three specific points of high volume. In a bull flag formation, traders will hope to see high or increasing volume into the flagpole (trend which precedes the flag). The increasing or higher than usual volume accompanying the uptrend (flagpole), suggests an increased buy side enthusiasm for the security in question. Traders of a bear flag might wait for the price to break below the support of the consolidation to find short entry into the market.

The bull flag pattern is one of many trading strategies used by traders either to enter a market on the buy side or as an opportunity to add to existing long positions. It would be best to have confirmation, such as a strong move-up. Without that, the formation becomes questionable, and trading it as a bull flag is risky. It would be best to have the volume on the first move, along with consolidation. The bull flag pattern is a great addition to any trader’s toolbox.

No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. Once you find consistency trading the first bull flag rally, you can start branching out. forex trading plan A flat top breakout is a bull flag that consolidates sideways instead of pulling back. Once large volume comes back and starts pushing the stock further down, that could be the time to short sell. Ideally, you pair this with another technical or fundamental indicator — like the first red day after a runup or news of an offering.

Many small-cap assets are prone to explosive moves upwards, and the chart might simply create a double-top at the previous flag pole. Traders should look into the local trading history of the asset to establish a price target for the trade. It is a fragment of the BTCUSD price chart from the beginning of August 2021.

It must be preceded by at least three large consecutive higher daily price closes. This is followed by a period of consolidation; this creates the flag part of the pattern. First, at times, the pattern can take a long period to form. Second, the pattern can expose you to false breakouts if you are not careful.

One of them is to have a pre-determined profit target based on length of flag pole. But, if the breakout is strong, you end up entering at a much higher price. If you enter on the break of the highs, it could be a false breakout. But, if it’s a real breakout, it’s the best possible price you can get. There are times a Bull Flag Pattern can form when the market is in range, at Resistance. So… when the market finally breaks out, traders who miss the move can’t wait to enter on the first sign of a pullback.