As you develop the skills needed to succeed in trading foreign currencies, you may come across instances of a bull flag. Understanding and using the opportunity given by a bull flag is a great addition to your trading toolbox. Here’s what you need to know about bull flags in forex trading.
What a Bull Flag Means
When you are studying the forex charts, you can recognize a bull flag through its distinctive pattern. Watch for breaks in trends where there is a small pause in the trend followed by a sharp increase in price. You’re looking at a bull flag when there is a downward slope. This signifies a reduction in volume that will be followed by an increase at some point. The bull flag is named for the overall pattern that is created during this process.
Components of a Bull Flag in Forex Trading
The four components of a bull flag in forex trading are:
- The uptrend that creates the flagpole
- Downward slope
- Retracement at less than 38% of the original trend
- Price break higher than the length of the flagpole
Trading Based on a Bull Flag
Knowing when to trade in a bull flag environment is key. The recommended points of trade are at the high breakout after the flag or the lowest point at the end of the flag. There is only a short amount of time between these two points, so you will need to act fast. Be patient, and wait for the entire bull flag pattern to play out before making your trades.
Should You Rely on a Bull Flag?
Relying on a bull flag for your forex trading depends on many factors, including your experience and the presence of all factors that generate the bull flag in the charts. Using a bull flag works in all financial markets yet should be reserved for traders who understand the complexities of the pattern.
Bull Flags for Novice Traders
If you are a novice trader, you may want to learn to recognize bull flags and other patterns in forex trading, such as bear flags, double bottom, and head and shoulders. These patterns can guide you about what steps to take and when, yet you need to recognize them easily and quickly.