Trading the Bull Flag Pattern

The study of technical analysis allows us to identify pricing patterns in order to extrapolate potential future market movement. One of the most useful patterns in a trending environment is used to spot continuations in price. Today we will look at identifying and trading the bull flag pattern in an established up trending market. 

Bull Flag Pattern

 

Identifying the Pattern

 

Identifying a bullish flag pattern can be easy once you know specifically what you’re looking for. The pattern itself is comprised of three different components. First we need to find the flag pole which will be identified as our initial advance in price. The angle of this advance does not matter and should be measured by calculating the distance from its previous low to its current high. Next we have the actual flag to consider. This is identified as a period of consolidation after the completion of prices initial advance. During this period, prices may slowly channel downward to retrace a portion of the initial move. At this point traders will wait for price to break back upwards towards higher highs in the direction of the trend. 

After price begins to move lower again, we can then find the final component needed for trading a bearish flag pattern. The profit target is a potential value to take profit after a currency pair’s next decline in price. This pricing level can be identified by first measuring the distance in pips of our established flag pole. This value in pips can then be added from the low resistance line formed from our flag.