A bull flag pattern occurs in a bull market where the price moves upwards, but encounters a resistance level. Then the price corrects into the pattern until it finally breaks the resistance, and breaks out to the upside. So, how do we trade this pattern? There are some simple rules.
- Always trade on the breakout.
- Don’t trade on support level.
- Once the price breaks the resistance level, open directional trade.
- Stops either on false breakout or beneath support level.
Let’s look at a real life example. We are now looking at the bull market in the USD/JPY pair. As you can see, the bull market starts, then consolidates, and we have here the first bull flag formation. Price breaks out to the upside and the uptrend continues. Now, we have here the second bull flag formation. Price breaks out and we have the trend continuation.
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