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.
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.
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 on a bull flag I buy the first candle to make a new high after the 2-3 red candles of pullback.
I set my stop at the low of the flag which is usually pretty close by. This gives me a good risk reward ratio.
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. It’s important to be careful not to buy a double top.
If we have a big pullback, then squeeze right back to the highs we’ll sometimes see a double top formation, or a U shape on the chart. In the examples below you will see some perfect bull flags, but you will also see some sloppier bull flags.
The most important thing is that we trade bull flags on the best stocks! It’s not about trading the best pattern, it’s about trading patterns on the strongest stocks.
Bull flag patterns are a great setup for new traders to learn because they are easy to spot and trade once you understand the mechanics behind them.
Like most patterns, volume must be present on the breakout. This confirms the pattern and increases the likelihood that the breakout will be successful.