Bull flags are continuation chart patterns found within an up trending market. They are formed after a steep price advance by two tight parallel down sloping trend lines in a near 35-45 degree angle. The pattern is confirmed on a upward breakout of the bull flag.
Definition of Bull Flagpole: The price swing A-B leading to the top of the flag. The chart below illustrates.
Bull Flag Forex Trading Ideas
Once a bull flag pattern occurs on the forex chart, we will be looking to buy the currency pair as bull flags usually indicate the upside price action soon to continue.
Wait for a sustained break of the upper bull flag trend line. Then enter long at market on the open of the next candlestick.
Set stop loss below the lower bull flag trend line.
The profit objective is an equal distance of the flagpole A-B which is then added to the bottom of the lower trend channel in the bullflag, or one could use prior resistance levels, pivot points, 1 to 2 risk-to-reward ratio’s… to exit the bull flag trade.
R-T-R Bull Flag Trade Example
Below is a 5 min chart on Euro/Dollar. We identified a bull flag pattern setup on Oct 14th and initiated a long position after the sustained break to the upside. Our trade entry was at a price of 1.4037, along with a stop loss at 1.4018. Our projected profit target was twice the risk taken at a price of 1.4075. Approximately 25 minutes later, our profit objective was achieved for 38 pips.