Bull flag trading is fairly simple. The hardest part of trading this pattern is finding it in realtime, but our scanners streaming everyday for Warrior Starter and Warrior Pro students help make that easier.
If you’re looking for free scanners to find bull flag patterns you can check out Finviz or Chartmill.
Checklist for trading bull flag patterns:
- Stock is surging up on high relative volume, preferably from a news catalyst.
- Prices consolidate at or near highs with a defined pullback pattern.
- Buy when prices breakout above the consolidation pattern on high volume.
- Place stop order below bottom of consolidation pattern.
- Profit targets should be at least 2:1 risk/reward. So if you are risking 25 cents, then first PT is 50 cents from your entry price.
The main thing to look for in this pattern is volume. Volume confirms major moves and the likely hood that a breakout will be successful.
The second thing you have to look for is a defined descending trend line that you can watch as the point of breakout. This will be the top part of the flag. 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. 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).
Bull 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. 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.
There are a couple of different ways to manage this trade. The most common is to place a stop below the consolidation area. In the example above, you can see the line drawn out on the bottom of the flag pattern. 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.
The other way is to use the 20-day moving average as a stop. So if prices close below that moving average then you would close out your position.