Study Guides
Study Guide: Bull Flags

Bull Flag Continuation Pattern

Both pennants and flags have the same implication.

They form after a sharp up move due to a volume increase.

They have a “pole”, which appears prior to a sharp move.

They both then form a period of consolidation, on lower volume.

The most reliable bull flags are when the pattern of slowing volume matches the flag pattern.

Many bull flags fail when the stock price is below the 49 EMA.

The more horizontal the bottom of a bull flag is, the more chance a ledge trade opportunity is forming.

You want the flag slightly going down.

CONSOLIDATION PATTERNS FORM AFTER A PROTRACTED MOVE:

After a period of consolidation, the pattern will usually play out as a “mirror image” of the previous move.

Chris has 4 favorite patterns. (Pennants and flags are combined into one category)

1) Bull pennants and flags

2) Bear pennants and flags

3) Ledge trades, also called flat line trend line breaks

4) Continuation gaps

FLAGS ARE A RESULT IN A MASSIVE CHANGE IN PSYCHOLOGY:

A big surge upward in price usually involves an overbought condition. The flag forms because of an equilibrium between buyers happy to take a profit and short sellers. Once the price breaks to the upside short sellers may feel they have to cover, people jump in, not wanting to miss the move, and algorithms that look for these patterns jump in.

WHY DO FLAGS FAIL? :

The 3 biggest failures of flags occur when…

- The flag is opposite the direction of the primary trend.

- The flag has “nowhere to go”. Meaning it is already near important support or resistance levels.

- Stocks key off other factors and those factors are failing. For example the way CXO's price suffers when /CL is in a downtrend.