A Bull Flag Pattern Trading Strategy — A Complete Guide

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A Bull Flag Pattern Trading Strategy — A Complete Guide


Bull Flag Pattern Trading Strategies That Work In Bull and Bear Markets

Before we get to the strategies…

Let me share the entry trigger rule with you because this is the same rule that we will use on all three strategies.

The rule is simple:

Wait for the price to make a “highest high close” from the pole (that’s right, above the highest wick of the candles)…

Highest high close on JNJ daily timeframe:

bull flag pattern

Then enter on the next candle open…

Bull flag pattern entry trigger on JNJ daily timeframe:

bull flag pattern

The entry trigger rules are the same for the strategies that I’m about to show you because entries only play a small part in the equation.

Meaning, how you manage your trade makes all the difference, not how you enter.

So don’t spend too much energy on how you should or shouldn’t enter a bull flag pattern, yeah?

With that out of the way, let’s get started…

Strategy #1: Bull flag trend continuation strategy

Let’s say you want to capture medium-term trends.

Therefore, you’d be using a 50-period moving average.

Now, what you want is for the price to be above the 50-period moving average.

Price above the 50-period moving average on MARA daily timeframe:

bull flag pattern

Then wait for a good bull flag pattern to form with your stop loss below the lows of the pattern.

Bull flag pattern entry on MARA daily timeframe:

bull flag pattern

Of course, a strategy is not complete without the exit rule!

In this case, you want to use the 50-period moving average as your trailing stop loss.

It means that you will not exit your trade until the price closes below the moving average.

50 MA trailing stop exit on MARA daily timeframe:

bull flag pattern

That’s it!

I know it’s simple, but that’s how it should be.

Because the more you complicate your strategy by adding random variables…

The more impossible it is to pinpoint what works and what doesn’t (and which one to improve or optimize).

Nonetheless, if you’re a trend follower, then this strategy is for you.

Strategy #2: Bull flag pattern range breakout strategy

With this strategy, your technical analysis skills will be tested.

At this point, you should be a pro at plotting support and resistance.       

Now recall, this strategy is a range breakout strategy.

It means that you need to identify range markets and spot where their support and resistance are.

So let’s put you to the test…

Where do you think are the key levels of support and resistance on the chart?

Blank chart on FCEL daily timeframe:

bull flag pattern

Now here’s mine…

Support and resistance on FCEL daily timeframe:

bull flag pattern

With your areas now plotted, the next thing that you’re looking for is for the price to reach the area of support and make a valid bull flag pattern at it or below it.

Bull flag pattern setup on FCEL daily timeframe:

bull flag pattern

At this point, we’re not sure what type of trend it would be if it develops.

That’s why I suggest taking your profits below the next area of resistance you’ve plotted on the chart.

Bull flag pattern fixed take profit on FCEL daily timeframe:

bull flag pattern

Again, you must be already familiar when it comes to plotting support and resistance.

So if you want to improve your skills in plotting them, then I suggest you read this article: Support and Resistance Trading Strategy — A Beginner’s Guide

And finally…

Strategy #3: Bull flag pattern trend reversal strategy

Not to be biased, but this one is probably my favorite out of the three due to its simplicity (okay, that sounds pretty biased).

Now since this is a trend reversal strategy, you’d want to look for downtrends.

So the more beat up the market is, the better (and that’s the best part about this).

Downtrend on U daily timeframe:

bull flag pattern

Once it breaks its upper trend line resistance, the next thing is that you want the price to form a bull flag pattern.

Bull flag pattern on U daily timeframe:

bull flag pattern

Bull flag pattern entry and stop loss on U daily timeframe:

bull flag pattern

I repeat.

No bull flag pattern.

No trade.

Because it would tell us that the level isn’t sustaining pretty well, and it might be a false breakout instead.

Finally, I suggest using a tight trailing stop loss such as the 20-period moving average.

Why?

Because there’s still a chance that the trend never develops or it’s a new range in the making!

20 MA exit on U daily timeframe:

bull flag pattern

So you want to get out as soon as your trailing stop loss is hit as opposed to having fixed targets.

Makes sense?

You probably have this question in your mind right now:

“Does it work in the Indian markets?”

“Does it work for forex?”

“Does it work for crypto?”

It does!

But I want you to listen closely…

The only way to make this truly work in a way that will grow your trading portfolio is to:

Which is something I’ll discuss further in future guides.

But before you finish this guide…

I want you to promise me that you will do your work by tweaking, backtesting, and demo trading these strategies consistently first before risking your hard-earned money.

Promise?

Good.

Let’s do a quick recap on what you’ve learned in today’s guide…

Conclusion

  • A bull flag pattern consists of a strong-legged move up, which is the pole, and a group of indecision candles, which forms the flag
  • It’s essential to determine the price action of the markets first before using the bull flag pattern
  • You can use the bull flag pattern to capture trend continuation trades, trend reversals, and range breakouts

There you go!

Now over to you, do you already trade the bull flag pattern?

What’s your experience trading this pattern?

I’d love to hear it in the comments section below!





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