As the old saying goes, “one never knows what one does not know.” This is especially true in finance, where it is always best to expand your horizons and learn new things. To get started on your journey, you should familiarize yourself with some reliable chart patterns that have been proven to work time and time again. Some patterns are more commonly seen than others, but all have benefits.
What is a Bull Flag pattern?
It is a continuation chart pattern that consists of two parallel trend lines that form the top and bottom of the flagpole. The upper trend line has an upward slope, while the lower trend line has a downward slope. The pattern will appear when a significant price move occurs and then corrects itself.
Following the initial breakout, the price often takes on a series of lower highs and lower lows before breaking back above the upper trend line and continuing to rise.
What Does the Bull Flag Pattern Look Like?
As its name implies, a bull flag pattern looks like a flag used in sports where you run across the field or court and lift your flag high. In this case, the flag results from a price that made an extreme move to the upside and then pulled back to a level that acts as support.
The level of support can be seen in the middle of the flag, and it is considered a key price area. The bull flag pattern will work best when the mentioned resistance level is at a critical technical level, such as a prior high or low.
Key Takeaways
Bull flags are great continuation patterns to trade because they often result in a strong breakout. The pattern is easy to identify and is viewed from a trader’s perspective going long. Essentially, a bull flag pattern is a channel that looks like an upside-down letter “J.” Traders looking for new stocks to add can enter when the price breaks out of the small consolidation range at the bottom of the pattern.
The Flagpole
The flag pattern will consist of three main components – The first is the flagpole, which measures from the start of the reversal to the high of bar one. The next component of the pattern is what is referred to as the flag. The flag will show prices moving sideways and will typically have a range of three to five bars. Lastly, the pattern will have what is referred to as the pennant, which measures from the start of bar one to the end of bar three.
How Long Should Bull Flag Patterns Last?
As with any chart pattern, you must find stocks showing bullish momentum and starting to take off on new 52-week highs. As with any pattern, a good rule of thumb is to take your time forming the pattern and maintain a level of patience when you follow through with the trade.
After all, there is no sense in taking prominent positions on an apparent bull flag to turn around and see the stock drop back down below its price range. Also, be sure that you are not using a pattern that has become over-used and is no longer effective. The overall goal is to utilize chart patterns as a guide but appropriately kept.
Best-Kept Secret of the Bull Market
The best-kept secret of the bull market is that there are no secrets. A bull market is like a flowing river, and even though many features make up this phenomenon, it can’t be denied that it does have specific “shapes” or certain “motions. ” The best chartists and the best investors can’t always find those “shapes” – but one thing is for sure when they can see them, that’s when the market has entered into a new and favorable stage.
A completely different approach was shown in 2008 after the beginning of the year. After two consecutive years of decline, stocks were supposed to be ready to recover in late January. But it didn’t happen that way. The stock market headed south and continued to decline until early April.
But in mid-April, there was a huge “U-turn,” as the term is often used in the stock market, and over 55% of the decline was reversed. By early June, another “U-turn,” this time with a decline of only 10%, was made. This technique seems to show that by mere chance, we can get out of what appears to be a downtrend and enter into a new uptrend when things are looking bad on paper.
The bull flag pattern is pure magic, however. It has shown us that all we have to do is wait for a little and not be impatient, and the bull market will do its thing. Everyone who understands the immediate price action of stocks will see it in action, even if they know nothing about it on the surface.
You may have seen it before without knowing what you were looking at. But once you know what it is, you will also realize that these patterns are very reliable and robust in the stock market. That’s why I’m sure they will continue to be effective in the future.
Conclusion
This is the most crucial chart pattern to know in the financial markets. It works as a continuation chart pattern and has reversed over 50% of price declines during bull markets. That is a remarkable statistic for a reliable chart pattern seen in action over time.
Thus, it is evident that the bull flag pattern is reliable and will work continuously with any time frame. You have to figure out the patterns and how to trade them. Study them, learn them, and understand them and you will see that it is proof that the stock market moves logically and follows a pattern every time.
