when is a bull flag invalidated: What is Bull Flag Pattern & How to Identify Points to Enter Trade DTTW

exit the trade

The breakout from a flag often results in a powerful move higher, measuring the length of the prior flag pole. It is important to note that these patterns work the same in reverse and are known as bear flags and pennants. Bull flags typically begin to surface in conjunction with a new market rally.

upper trendline
parallel channel

We use the same GBP/USD daily chart to share simple tips on trading bullish flags. The breakout occurs once the buyers reassume control of the price action after a temporary pause in the uptrend. Overall, the pattern is considered to be a formidable pattern to trade, as long as all elements are in place.

There are two schools of thought on how to enter a breakout. The first is to use a pending order to go short just below the neckline. Note that those who use this method are not waiting for the market to close below the neckline. Notice how it took a daily close below neckline support to constitute a confirmed break.


If you want, you can set a stop-loss somewhere just below the lowest price level of the flag. If the price drops below that, it is almost certain that your trade is invalidated. If the price breaks above the swing high, go long with stop loss 1 ATR below the low of the Bull Flag.

day trading

We realize that everyone was once a new trader and needs help along the way on their trading journey and that’s what we’re here for. Also, we provide you with free options courses that teach you how to implement our trades as well. If bulls, then you need to close or never open in the first place. If we see a retest of prior price levels, we’re concerned.

Next, we need to figure out where we need to get into the when is a bull flag invalidated, which brings us to the next step of the best Flag pattern strategy. As such, the best strategy is usually to buy the stock when it moves past the upper side of the channel. Typically, the key levels to watch in this case are the upper and lower sides of the pennant. If I want to double my position on the high of day break and then sell through that spike I can make a little more money. Volume confirms major moves and the likely hood that a breakout will be successful. Add on a breakout to the high of the day if volume expands.

What happens after the head and shoulders pattern completes?

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 strategy. 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.

  • Upon breakout of the upper channel line, we expect to see a continuation of the prevailing bullish trend.
  • But there is nothing like actual charts to clarify the ideas presented so far.
  • When the stop loss implied by the right shoulder is too wide, it makes sense to place a tighter stop.
  • You see, it isn’t the price structure itself that causes the market to reverse.
  • A common saying among members of the financial community is that past performance is not indicative of future results.

As with every price pattern, there are nuances you can only learn through experience. Hence, from here on, you will see real chart examples, and not the earlier textbook diagrams. Of course, this inability to resume the trend is not enough to justify a trade. They are fearful and become sensitive to the price action that comes next.

There are a number of benefits to trading with bearish flags. As a general rule, you should set your stop-loss order at the top of the flag’s resistance level. In order to calculate your take-profit point, you will need to measure the distance from the flag pole. Let’s take a look at our previous example to see how this strategy would be implemented in the real world. Of all the various price patterns that exist, the bearish flag pattern is among the easiest to identify and confirm as it only consists of five characteristics. As the prices of securities fluctuate, past price data is recorded and can be observed on what we call price charts.

Apex Clearing Corporation, our clearing firm, has additional insurance coverage in excess of the regular SIPC limits. Although these are key points to pay attention to, it’s also important to consider overall trends in the market to be sure you don’t misinterpret the signals. The pattern should have parallel lines to form the flag. Let’s take what you’ve learned and develop a Bull Flag trading strategy.

Stop Loss Placement and Risk Control

Then with each target the Stop Loss order should be moved upwards, locking in profits as price advances. The two-other trailing stop loss orders are shown with S/L 2 and S/L 3. By now you should be getting more familiar with trading the Flag chart formation. But there is nothing like actual charts to clarify the ideas presented so far. So now we will shift our attention to some practical chart examples using Flag Patterns.


To reverse a strong bull trend, you should look for a head and shoulders pattern that forms over a longer period. In such cases, waiting a few weeks for a pattern to complete is common. With these scans, you can start building a watchlist of bullish stocks. You can then check them periodically to find potential head and shoulders patterns.

Exit on Close (Safety Net)

In this article, we’re going to dive into the fine details of the bull flag patterns. We’ll explain what a bull flag is, many of the subtle nuances in this pattern, and how to best trade the bull flag. Recognize that all chart patterns are a combination of swing pivots and trend lines. In the case of the head and shoulders, it’s the combination of three swing highs, two swing lows, and a neckline. However, like all pattern formations, bearish flags are not immune to failure.

Since this is a https://g-markets.net/ 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. The shape of the flag is not as important as the underlying psychology behind the pattern. Basically, despite a strong vertical rally, the stock refuses to drop appreciably, as bulls snap up any shares they can get.

How to Trade Crypto With a Bear Flag Pattern

Nothing in trading is guaranteed but if you can learn how to identify this setup and use conservative risk management rules you can make money trading this pattern. 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. In this case, we want to enter when we break above the upper flag “border” or above the top of the flag pole. Whenever a strong gap happen, many bullish investors are known to exit their trades on profit-taking.

The most aggressive exit strategy is one based on strategy invalidation. When the market closes above the neckline, the pattern is deemed invalid, and the position is closed. For a neckline with a slight downslope, you can trade them if there other supportive factors. In fact, some traders find that the pattern works better when the neckline slope is down.

The buy signal on this chart comes when the price action creates a bullish breakout through the upper level of the pennant. In this case you should put a stop loss order below the lowest point of the pennant as shown on the image. Notice the bullish Flag pattern starts with a bullish Flag Pole, which turns into a bearish correction. Upon breakout of the upper channel line, we expect to see a continuation of the prevailing bullish trend.

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