Ideal Bull Flag on 60 minute chart

Dec 15, 2007: 12:05 PM CST

One of my favorite patterns as of late has been bull and bear flags on the indexes and selected stocks.

Bull flags work off the principle that ‘momentum precedes price’ and also somewhat that psychological factors cause investors/traders to move prices in equal or proportional waves, which is quite interesting.

To identify a “measured move” or bull flag, look for an initial momentum (price) impulse followed by a shallow but controlled pull-back or retracement against the initial momentum move, and then project the distance from “pole to flag” or from the start of the perceived impulse to the break of the flag.

The best flags I find pullback to a key moving average for confirmation of potential support.

I love trading these especially on the shorter time frames because the pattern is clear and the risk (stops) and target (projection) is also clear.

It really doesn’t involve complex indicators and it can be traded totally off price itself.

Let’s look at the pattern that occurred recently in the Dow Jones Industrial Average on the 60 minute timeframe:

I also call this the “lightning bolt” pattern because the annotated lines (they are NOT trend-lines) carve out a zig-zag type pattern.

Notice the immense consolidation period that occurred (green lines) that took price to the 50 period moving average. From this point, a large impulse occurred taking price above the green line, which signaled your initial entry into the trade.

A stop was placed a slight distance beneath the green line (channel) which would also be beneath the rising 50 period moving average (for added stability).

Price was projected to advance from the bottom of the impulse (pole of the flag) in a ‘measured move’ style fashion to the break, and we see price achieved that objective before rolling over quite forcefully as a result of the Federal Reserve’s decision (actually as a result of disappointment from large traders).

Study your own charts across various time frames to see if you can identify this pattern and if you might want to learn more about it to incorporate it into your own trading arsenal.

10 Comments

10 Responses to “Ideal Bull Flag on 60 minute chart”

  1. HARISH THAKKAR Says:

    Thanks lot for your valuable eduational information which has given an edge in my trading skill.

  2. HARISH THAKKAR Says:

    Thanks lot for your eduactional informational,which has given an edge to my trading skill.I think, I am sure to make my fortune by trading in NSE INDIA where I am staying.Can you please guide me which MOVING AVERAGE are best to use in intra day trading ? Particularly for ‘BULL FLAG’ & ‘BEAR FLAG’ Which MA yoy have used in your example?

  3. Corey Rosenbloom Says:

    Harish,

    Thank you for reading and for your support.

    I find the 20 period exponential moving average works best for me, and I also use the 50 period EMA and 200 period Simple Moving average, which doesn’t always come into play. The “20” often provides great entries and targets in trending environments/days. I find the best flags work when price retraces to the 20 period EMA.

  4. SWAN Says:

    it is very helpful to new TA students

  5. Corey Rosenbloom Says:

    Thanks Swan!

  6. itsonlypaper Says:

    could this also be called an A B = C D pattern for a short?

  7. HARISH THAKKAR Says:

    Thanks lot for your eduactional informational,which has given an edge to my trading skill.I think, I am sure to make my fortune by trading in NSE INDIA where I am staying.Can you please guide me which MOVING AVERAGE are best to use in intra day trading ? Particularly for 'BULL FLAG' & 'BEAR FLAG' Which MA yoy have used in your example?

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