![]() 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. I set my stop at the low of the flag which is usually pretty close by. So on a bull flag I buy the first candle to make a new high after the 2-3 red candles of pullback. If we wait to buy the highs on the bull flag, we are chasing and a proper stop (at the low of the flag) is too far away. ![]() So as a flat top breakout consolidates within a few cents of the highs, a bull flag pattern experiences typically 2-3 red candles of pullback and can even pullback to the faster moving averages like the 8 or 10 EMA. When I trade a bull flag stock pattern, the biggest difference from a flat top breakout is that the consolidation is occurring BELOW the high. When volume comes in on the breakout, you want to be jumping on board because this is confirmation that other traders were waiting for the same thing and will increase the likelihood of success dramatically. The key to trading flag patterns is following the volume. You’ll have a sharp down move on high relative volume followed by a slight pullback before continuing on the trend. So if prices close below that moving average then you would close out your position.Ī bear flag is identical to a bull flag except the trend will be to the downside. The other way is to use the 20-day moving average as a stop. This is the point where you know that this setup is no longer working out and its time to take a loss and move on. In the example above, you can see the line drawn out on the bottom of the flag pattern. The most common is to place a stop below the consolidation area. There are a couple of different ways to manage this trade. Or more definitively, the point on the chart where you know that this set up is no longer working out and it’s time to jump ship. You can also see how neatly the line connects to the other moves up that were rejected (3 points of contact including the high of the flag pole).īull flag patterns do have a statistical edge if traded correctly but in the event the set up fails you need to know where to get out. In the bullish flag pattern above you can see that the trend line is very recognizable and defined so when it did finally punch through price jumped up very quickly. The second thing you have to look for is a defined descending trend line that you can watch as the point of breakout. Volume confirms major moves and the likely hood that a breakout will be successful. The main thing to look for in this pattern is volume. So if you are risking 25 cents, then first PT is 50 cents from your entry price. Profit targets should be at least 2:1 risk/reward.Place stop order below bottom of consolidation pattern. ![]()
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