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How To Trade A Bull Flag Pattern

Patrick Stockdale
Written by Patrick Stockdale | June 2, 2022

A trader will use the bullish flag pattern to find buying opportunities in a market.

The construction of a bull flag pattern involves a rising trendline called the flagpole with two parallel levels of support and resistance.

These components are important areas to understand when trading the bull flag pattern.

To trade a bull flag pattern:

  1. Enter a buy position when the price of a market breaks through the resistance level: A trader enters a buy position when the price of a market breaks out above the resistance level of the bull flag. Once the price increases above this level, it triggers a buy trade.
  2. Set a stop-loss order below the support level of the bull flag: A trader should set a stop-loss order below the swing low price of the bull flag support level. Once the price declines lower than the support level, a trader is stopped out of their position.
  3. Set price targets by using the flagpole length: Use the length of the flagpole of the bull flag and add it to the buy entry price to get a price target for the trade.
  4. Watch for increased buying volume (optional): An optional step is to watch and see does the buying volume increase on the breakout from the pattern. This can be a hint that large buyers believe that the market will trend higher in a bullish direction.

Below are visual illustrations of every step of trading a bull flag pattern from entering into the trade to setting stop losses and price targets.

Bull Flag Pattern Entry Point

Bull flag pattern entry point example

The first step of trading a bull flag pattern is entering into a buy trade position.

The price chart above illustrates potential areas to enter a buy trade position when trading a bull flag.

When trading a bull flag, there are two potential areas for entering a buy position including:

  • Entering a buy trade when the price of a market breaks out above the resistance level of the bullish flag pattern.
  • Wait for the price of the market to break out and move above the resistance level and enter a buy position if the price retests the prior resistance level.

The two different areas of entering a buy position when trading a bull flag pattern are labeled "Buy entry" and "Alternative buy entry" on the price chart above.

Bull Flag Pattern Stop-Loss Level

Bull flag stop-loss level example

The next step when trading a bull flag pattern is setting a stop-loss order. This is important for the risk management of a trade.

When trading a bull flag, there are two potential areas to set a stop-loss order including:

  • Setting a stop-loss order just below the swing low price of the support level of the bull flag pattern. This is the most common price level a trader will place their stop-loss orders.
  • Placing a stop-loss order at the price just below the candlestick before the price breaks out of the pattern.

The two different areas to place stop-loss orders when trading a bullish flag pattern are annotated as "Stop-loss area" and "Alternative stop-loss area".

Bull Flag Pattern Price Target

Bull flag pattern setting a price target example

The final step of trading a bull flag pattern is setting the price target for the buy trade.

A price target for a bull flag pattern is set by taking the distance of the flagpole length and adding it to the buy entry price after the price breaks out of the pattern.

On the price chart above, the price target is annotated as "target price".

Interestingly in this example, the price reaches the target level and immediately reverses.

Bull Flag Pattern Trade Examples

Below are chart examples of trading a bullish flag pattern in different markets.

Example Of Trading A Bull Flag Pattern In The Stock Market

Trading a bull flag pattern in the stock market example

On the daily price chart of Ryder System Inc. stock, there is an example of a bull flag trade from beginning to end.

The price of Ryder System Inc. stock trends higher initially before consolidating.

This forms a clear bull flag pattern. Once the price breaks out above the resistance level of the bullish flag, it triggers a buy trade (labeled "Buy Entry Point" on the price chart above).

A stop-loss order is placed below the swing low price below the support level of the bull flag (labeled "Stop-loss level" on the price chart above).

The price target is set by taking the distance of the flagpole i.e. the initially bullish trend and adding this distance to the buy entry point.

The price target is then set (labeled "Price target level" on the price chart above).

Interestingly in this example, the price target was almost the exact point that the price reversed.

‍Example Of Trading A Bull Flag Pattern In The Forex Market

Bull flag pattern trade in the forex market example

On the daily price chart of the GBP/USD currency pair, there is an example of a bull flag pattern trade from start to finish.

The price of the currency pair initially makes a small bullish trend which is the flagpole part of the pattern.

The price then consolidates between two parallel levels of support and resistance. This illustrates the bull flag pattern.

Once the price breaks out above the resistance level of GBP/USD, a buy trade is placed (labeled "Entry price" on the chart above).

A stop-loss order is placed below the swing low price of the support level of the bull flag pattern (labeled "Stop-loss" on the price chart above).

The price target for the trade is set by taking the distance of the flag pole and adding the length to the buy entry price (labeled "Target" on the price chart above.

Frequently Asked Questions About Trading The Bull Flag Pattern?

Below are frequently asked questions about trading the bull flag pattern.

Is It Hard To Trade A Bull Flag Pattern?

No, a bull flag pattern is relatively easy to trade with just a few simple processes required to learn.

A new trader just needs to learn to buy at the breakout point of the pattern and place a stop-loss order below the support level of the pattern.

Where Is The Best Buy Point When Trading A Bull Flag Pattern?

The best and most common buy point when trading a bull flag pattern is when the price of a market breaks out above the resistance level of the flag.

The price just above this resistance level of the bull flag is the ideal buy entry point.

Is It Risky To Trade A Bull Flag Pattern?

The risk associated with trading a bull flag will depend on the individual trader's risk management. A professional trader trading a bull flag pattern will typically risk no more than 1% or 1.5% of total capital per trade.

Can Bull Flags Be Traded In All Markets?

Yes, a bull flag pattern can be traded in any market where it forms. This ranges from stocks, commodities, futures, options and forex etc.