A Bullish Flag is a short-term continuation pattern that appears after a strong price rally. It forms a small downward or sideways consolidation resembling a flag on a pole. Once the price breaks out above the flag, it signals a continuation of the uptrend. This pattern indicates a brief pause before the next upward move.
Significance
- Indicates that buyers are taking a pause before resuming the uptrend.
- Suggests a healthy correction rather than a reversal.
- A breakout above the flag confirms the continuation.
Characteristics
- Strong price movement leading into the flag formation.
- Breakout occurs when price moves above flag resistance.
- Volume declines during formation and spikes on breakout.
Market Condition
- Forms during an uptrend, acting as a consolidation phase.
- More effective when accompanied by strong momentum indicators.
Trading Strategy
- Entry point – Buy when price breaks above the flag with strong volume.
- Stop-loss – Below the flag’s lower trendline.
- Target price – Measure the flagpole height and add it to the breakout level.