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Some bears also go in, hoping that the price will decline. A sharp uptrend should always precede the pattern followed by a correction. The pattern is short-term because it’s just a consolidation within the overall trend. The correction or the pattern term depends on the timeframe.
But chart patterns can represent an area where supply or demand may increase or decrease. Bull flags have been examined by many traders for their accuracy. According to the book, Encyclopedia of Chart Patterns by Thomas Bulkowski, he found that bull flags had a 64% win rate of reaching their price targets (1). Moving averages can be used with bull flags without any issues. A trader will usually use the moving average to trail a winning trade from a bull flag breakout.
Bullish Flag Formation Signaling a Move Higher
In the chart below, we see GBP/USD price movements on a daily basis. The flagpole (the blue ascending trend line) covers the beginning of an uptrend. After a short-term peak is created, the price action corrects lower to around 50% of the initial move.
The bull Flag pattern is one of the favorite patterns for a day trader. The hard part is recognizing the pattern in a timely manner. Bear https://www.bigshotrading.info/ flags are considered as an extremely reliable price pattern when all their unique formations are correctly identified and measured.
Example #3: Intraday Bull Flags With A Losing Trade
In the chart below, we see that the USD/JPY formed a bullish flag. In the first instance, the price dropped to the 23.6% Fibonacci retracement level. Had it dropped https://www.bigshotrading.info/blog/bull-flag-pattern-bullish-and-trading-strategies/ below the 50% retracement, the pattern would have been invalidated. Meanwhile, the period of bear flag formation tends to coincide with declining trading volumes.
- 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.
- 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.
- They are called bull flags because the pattern resembles a flag on a pole.
- The breakout occurs once the buyers reassume control of the price action after a temporary pause in the uptrend.
- The following Bitcoin (BTC) price pattern between December 2020 and February 2021 shows a successful bull flag breakout setup.
Discover the range of markets and learn how they work – with IG Academy’s online course. The information on this page is not a personal recommendation and does not take into account your personal circumstances or appetite for risk. For instance, now you need to look for swing lows in the pullback up instead of swing highs. But regardless of which length you use to project the target, the market would have fallen short. Although the flag breakout led to a bull run, I would not. ThinkMarkets ensures high levels of client satisfaction with high client retention and conversion rates.
