Bullish flags are a continuation pattern found in stocks with a strong uptrend. As can be observed, the pattern resembles a flag on a pole. The vertical rise forms the pole and the following period of consolidation forms the flag. The flag can be a horizontal rectangle but mostly angles down from the pole. The focus should be more on the underlying psychology of the pattern than the shape. Despite the strong vertical rally, the stock refuses to drop much because the bulls are buying as many shares they can get their hands on. ________________________________________________________________________________________________________________________
Main characteristics of a flag pattern:
1. The trend before the appearance of the pattern. 2. The channel of consolidation. 3. The volume behavior. 4. The breakout. 5. The confirmation of price movement in the direction of the breakout.
The target for a bull flag is calculated by measuring the length of the flag pole and projecting it from the breakout point. The volume starts to pick up towards the end of the consolidation range indicating the oncoming breakout. Then there is a huge increase in volume when the pole is being formed and the volume tapers off during the consolidation period.
1. Longer term traders may place their stop loss below the entire flag. 2. A stricter option would be just below the consolidation are before the breakout. 3. The tightest option would be a two bar low trailing stop.
No one can know for sure which way the price will move, whether it will continue or reverse. One can follow the action of price, trade only the best setups and let the probabilities work out. While patterns may give false signals, bullish flags are generally reliable and effective.
Keep an eye out for price action unravelling currently. Price is pulling back to the 20 EMA, forming a consolidation, a flag of sorts. A continuation candle near the average with decent volumes could be the sign of a fresh move upwards.
GATI is showing strength today with decent volumes, but it has faced intraday rejection many times in the past from the 169 level, so it should close above it for the momentum to continue.
If it is closing above 169, a position can be initiated keeping a stop loss just below 164, which is today's low. Target would be 180.
Keep watch. :)
Trade closed: stop reached
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After making a high of 176 on 22.07.21, GATI turned back and has hit stop loss today.
Comment
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GATI is trying to continue its upward move, will keep an eye open for possible re entry.
Very Nice to read about Bullish Flag. Right now I have infosys in my watchlist with this bullish flag pattern. Am waiting for breakout and confirmation for entry. Thanks for the info.
Tradeception_
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@SUDRED12, You're welcome, will keep an eye on INFY too. :)
Tradeception_
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@SUDRED12, INFY seems to have finally broken out today.
SUDRED12
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@rishiguy, yes. looks like it. Waiting to cross the immediate resistance and the right signal for entry. Thanks for checking it out.
GaliNeeru
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Thanks for sharing. Good .Thanks.
rajshree2802
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well explained..thankyou for sharing in so detail..got to learn so much...keep up the good work...
Tradeception_
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@rajshree2802, Thanks a lot, keep watch, more ideas to follow. :)