Definition:
A Bullish Flag forms after a strong upward impulse, when the price enters a short consolidation, usually in the form of a downward-sloping channel. This pause reflects the market “catching its breath” before continuing higher.
Key Characteristics:
- Strong upward impulse (the flagpole).
- A corrective channel sloping downward.
- Decreasing volume during the correction phase.
- Breakout to the upside accompanied by increasing volume.
How to Trade:
Traders and algorithms enter long positions on the breakout of the flag’s upper boundary. Stop-loss is placed below the local minimum of the channel, while the target is measured by the height of the flagpole.
Common Mistakes:
- Entering before a confirmed breakout.
- Ignoring volume (false breakouts occur frequently).
Conclusion:
This is one of the most reliable continuation patterns, especially in trending markets such as gold and major currencies.
