Today you’ll learn what happens after a bull flag.
After a bull flag, a consolidation, move higher or move lower will happen. A consolidation will happen when the market finds liquidity. A move higher results from a successful bull flag while it may go down when the bull flag fails.
- The market will have a consolidation
- The security may continue moving higher
- Bull flag Failure
- What is a bull flag
Most traders fail because they take every bull flag as bullish.
Their decisions to buy every bullish signal makes them conclude that the bull flag pattern is useless.
They think it is useless because they are not having good trades.
However, if one can understand what price action will occur after a bull flag then he can profit from the opportunities in the market.
The opportunities can reward if taken with the correct strategy.
A strategy is available on this website for more information.
What is a bull flag?
According to Investopedia, “A bull flag is a flag in a pole often found in an uptrend”
One may find it in an uptrend, thus traders should only trade when there is a clear uptrend.
A bull flag looks like a flag that raised already. When there is a breakout above the top of the flag, traders often regard the security as bullish.
When it is bullish, it is not an automatic buy trade.
A Bull flag is a formation that resulted from a consolidation. When after the breakout, there is an imbalance between buyers and sellers.
The imbalance is a move away from liquidity. Meaning, more buyers are winning against the sellers which are popular among order flow traders.
Order flow traders often look for areas of imbalances in a liquidity area to find the important buyers and sellers.
Liquidity areas are often a short to medium liquidity after a bullish or bearish market move.
After a strong market up move, there is a price point where buyers and sellers of a security meet.
They battle against each other which forms a flag after an uptrend.
Below, we will discuss further the price action after a bull flag.
1. Consolidation of Price
After a bull flag, a consolidation may continue to the building up of liquidity.
The price of a security will move up and down within a range for a long time.
Of course this consolidation may happen after a bull flag. For example, the price will move into the consolidation, instead of moving up.
In a consolidation, traders should look for a bounce to close their trades.
Closing their trades may help reduce their losses or, if lucky, gain some profits.
Profits may result from following the target, and then the consolidation may occur once again.
Consolidation is an account breaker because there is no clear market direction.
The direction is unpredictable, which is up or down within a price range. The price range may look easy to trade, however, the range keeps expanding or contracting.
The range expansion will usually take out the stops near the top and bottoms.
To avoid being stopped out, traders can take half of their profits when reaching the price target.
2. The Price Move Higher
After a bull flag, the price usually moves higher. The trend may continue until a big seller shows.
The continuation of the uptrend often results to more profits because of its bullishness.
Bullish trends continue to move up, however, as advised before, it is safe to close half of the positions at the target before bad trades happen.
The target is about the length of the pole from below the flag formation. On the chart above, the price continued to move higher.
This stock is an example of a good bull flag pattern. The pattern is good because there was a bullish base before forming a flag.
3. The Price move lower
The third thing that happens may be a price failure. It showed the failure in the chart when the price immediately hit the stop loss or move outside below the flag.
The failure happens because the price move lower and lower instead of going up. It happens mostly when there is no bullish base.
However, sometimes, even with bullish bases, some bull flags just do not go up after the breakout.
They just consolidated or move lower depending on the trend.
The trend can be downtrend when the bull flag appeared. So, it is important to trade only in a strong security.
Strong securities can remain strong, and buying a bull flag within a strong security is an excellent strategy.
A bull flag will have three things happening in the future. The best way to do is understand whether there is a base below the flag formation to verify the strength of the trend.
The trend will determine whether a trader having a long trade will make money or not. Long trades are best when there is an uptrend.
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