What it means
A bull flag is a sharp rise (the pole) followed by a small downward-sloping channel (the flag). A bear flag is a sharp fall followed by a small upward channel. If the consolidation is a small triangle instead of a channel, it is called a pennant.
Why traders use it
After a strong move, a shallow, orderly pullback suggests profit-taking rather than reversal. A break of the flag in the pole's direction is a continuation.
Chart examples
Bull flag
Bear flag
How to identify it objectively
- 1A strong pole: several large candles in one direction.
- 2A shallow counter-move inside parallel lines (flag) or converging lines (pennant).
- 3The flag retraces less than half of the pole.
- 4Breakout = close beyond the flag in the pole's direction.
Bullish use
- 1Strong up pole.
- 2Shallow down-sloping flag.
- 3Close above the flag: enter, stop below the flag low.
Bearish use
- 1Strong down pole.
- 2Shallow up-sloping flag.
- 3Close below the flag: enter, stop above the flag high.
What confirms it
- Shallow retrace (< 50% of pole).
- Breakout candle with displacement.
What invalidates it
- The flag retraces most of the pole.
- A break against the pole direction.
How a hypothetical setup is built
Entry
On the flag breakout close.
Stop
Beyond the flag's opposite side.
Target
Pole length projected from the breakout (measured move).
A hypothetical illustration of how the concept is turned into a plan, not a recommendation. Practise it on a paper account first.
Related concepts
Historical testing
Not tested on The Tradeskill.
Limitations: when it fails
- Deep flags often fail.
- Late-trend flags are less reliable.
- Pole and flag boundaries are subjective without rules.
Knowledge check
Pick an answer to see the explanation. Nothing is saved.