Bull Flag Trading Strategy
Bull Flags are a subset of our Momentum Trading Strategy. You can see our Momentum Trading Strategy video that discusses bull flags here.
Flags can take Many Forms. My favorite Flag Breakout Strategy is a Flat Top Breakout which takes the form of an ascending wedge flag. I have a separate post where I provide tons of examples of that pattern. However, there are many variations of the Flag Breakout Pattern that are worth highlighting. In particular, the Bull Flag Trading and Bear Flag Trading are strong strategies that we will provide examples of below.
Bull Flags vs Flat Top Breakouts
When I trade a Bull Flag the biggest difference from a Flat Top Breakout is that the consolidation is occurring BELOW the high. So as a Flat Top Breakout consolidates within a few cents of the highs, a Bull Flag experiences typically 2-3 red candles of pullback. If we wait to buy the highs on the bull flag, we are chasing and a proper stop (at the low of the flag) is too far away. So on a Bull Flag I buy the first candle to make a new high after the 2-3 red candles of pullback.
I set my stop at the low of the flag which is usually pretty close by. This gives me a good risk reward ratio. If I want to double my position on the high of day break and then sell through that spike I can make a little more money. It’s important to be careful not to buy a double top. If we have a big pullback, then squeeze right back to the highs we’ll sometimes see a double top formation, or a U shape on the chart. In the examples below you will see some perfect bull flags, but you will also see some sloppier bull flags. The most important thing is that we trade bull flags on the best stocks! It’s not about trading the best pattern, it’s about trading patterns on the strongest stocks.