Bull flags and bear flags are common chart patterns that frequently appear on all currency pairs and timeframe’s. I am going to teach you my favorite strategy on how to trade flags in both uptrends and downtrends.
The strategy is quite easy to understand and could be used by both forex beginners and seasoned traders alike.
Appearance of Flags in Trading
Trading Setup
- Currency Pairs: Any
- Timeframe’s: Any
- Chart Patterns: Bull Flags and Bear Flags
Indicators:
100 SMA (100 simple moving average)
Trading Rules
A. Uptrends
- Price trades above 100 SMA.
- Bull flag pattern appears on the chart after a steep price rally
- Wait for a upward price breakout of the Bull flag
- Enter long trade at market on the open of the following bar
- Place stop loss 1 pip below the low of the lower Bull flag trendline
- Utilize 1 to 3 risk-to-reward ratio to calculate trade objective
Trade Example (NZD/USD M15)
Above is a 15 min chart on New Zealand/US Dollar(NZD/USD). We identified a bull flag pattern setup on November 4th and initiated a long position after the upward price breakout of the Bull flag.
Our trade entry was at a price of 0.7842, along with a stop loss 1 pip below the lower trendline at 0.7826. Our projected profit target was 3 x the risk taken at a price of 0.7890. Approximately 6 hours later, our profit objective was achieved for 48 pips.
B. Downtrends
- Price trades below 100 SMA
- Bear flag pattern appears on the chart after a steep price decline
- Wait for a downward price breakout of the Bear flag
- Enter short trade at market on the open of the following bar
- Place stop loss 1 pip above the high of the higher Bear flag trendline
- Utilize 1 to 3 risk-to-reward ratio to calculate trade objective