The bull flag is a pure price action pattern, a powerful technical pattern, occurring on any timeframe.

The ideal tank pattern should include the following two components:

  • A strong bull run before
  • Then, the price moves in a narrow range and slowly decreases, forming a bullish flag pattern with 2 parallel downtrend lines.

As shown below:

How to trade the bullish flag pattern

This is an uptrend continuation pattern, so we use it for uptrend trading.

We need to wait for the price to break out of the pattern and find signals to buy in the uptrend. The entry point should be either above the top edge of the flag pattern or above the top of the pattern. You can shrink the chart to see more clearly this pattern, as shown below:

Step 1: Zoom out the chart so that we can see the bullish flag pattern clearly

Shrink the chart so that we can more easily identify the bullish flag pattern. You can use the trendline to make this pattern easier to identify.

Step 2: Enter a buy order when the price breaks the flag pattern

When the price breaks the bullish flag pattern, we can enter a buy order when the price breaks above the upper edge of the bullish flag pattern. As shown below:

Or you can also wait for the price breakout to rise above the bullish flag pattern, then wait for a pullback to retest the previous breakout before entering. But there will be times when the price does not have the pullback we would like. As you can see from the above image, if we wait for the pullback, we will not be able to enter orders and miss this trading opportunity.

Pullbacks will be more unlikely when the breakout of the pattern is accompanied by high volume.

Step 3: Take profit point

The take profit point of the strategy is equivalent to the previous strong price increase (also known as the flagpole). As shown below:

As can be seen, the profit we get with this strategy is 262 pips.

Step 4: Stop loss

The stop loss should be placed below the bottom of the bottom edge of this pattern. When the price breaks below this level, the pattern loses its effectiveness. As shown below:

Above is the buying strategy for the bullish flag pattern. For a sell strategy with a bearish flag, let's think on the contrary. The figure below shows the principle of sell orders with a bearish flag pattern:

It can be seen that the bullish flag pattern transaction principle is very simple. We need to consider the valid bullish flag formation condition. Then can proceed with the trading. You also note the principle of stop loss and take profit. Following the rule will help you enter trading on better quality models.

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