timothy sykes logo

Penny Stock Basics

Bull Flag: Definition, Pattern, Examples, and Strategies

Timothy SykesAvatar
Written by Timothy Sykes
Updated 1/24/2023 15 min read

I say it all the time: patterns are everything in trading. So today, I want to do a deep dive into the bull flag pattern.

The bull flag is a smart pattern to understand and learn to spot. Why?

With massive breakout patterns like my favorite, the supernova, it can be hard to get a controlled entry into the trade. Breakouts can move fast, so it can be hard to get your trade executed where you expect.

But that’s not necessarily the case with the bull flag trading pattern.

And if you want to trade it, you need to understand the bull flag formation and strategy. You need to be able to recognize when it’s happening. After all, if you can’t recognize the pattern, you can’t trade the pattern.

So let’s break down the bull flag trading strategy. First up, let’s tackle the…

Definition: What Is a Bull Flag?

There are two parts to this question. I want to break them down so it’s very clear and you understand exactly what a bull flag is.

This chart pattern is dependent on specific stock price movements over a certain period of time.

1.) First, What Does ‘Bull’ Mean?

Post image

Get my weekly watchlist, free

Sign up to jump start your trading education!

Bull is used to describe an upward trend in a stock or index. In other words, stock prices are rising. If a stock is bullish, that means its price is going up.

That’s in contrast to the stock market term ‘bear,’ which indicates a downward trend. When a stock price falls, it’s considered bearish.

To read more about bullish and bearish patterns, check out this post.

2.) What Is a Flag?

Here, a flag is a chart pattern that resembles a flag on a flagpole.

On the chart, the stock price rises rapidly. It forms an almost straight pole, then consolidates over a period of time. That’s where the flag forms. In the consolidation period, the stock price might rise or fall, but only in small increments. That distinguishes the flag from its pole.

Don’t worry, we’ll get to an example in a bit.

For more chart patterns you should know, read this post.

Bull Flag Pattern

The important thing about the bull flag pattern is that it often repeats.

It’s all about trading psychology. Let’s break it down.

Traders get FOMO — they want to get in on the action. So as soon as they see a stock’s price dip a little, they jump in and buy shares. So what was a dip can quickly turn around. That increase forms the flagpole.

With a bull flag chart, traders see a strong rally in the stock price. That’s followed by a period of consolidation where some traders sell and others start to buy.

This can place some downward pressure on the price, so watch it closely here.

Last, you’ll see an end to the selling and the buyers will take charge once again. That can lead to another breakout.

Is it smart to watch for breakout patterns like the bull flag? Absolutely. But keep in mind that like any stock pattern, a bull flag can fool you. If there’s a negative catalyst about the company, the breakout you’re expecting may not happen.

Listen and react to the market. Don’t predict. A bear flag can follow when the market doesn’t support another breakout. The bear flag is the opposite of its bull counterpart — like an upside-down flag.

Bull Flag Pattern Examples

Here’s an example of a bull pennant flag. This one is on Vystar Corporation (OTCQB: VYST):

This is a great example of a clean chart with a well-defined bull flag. This one’s called the bull pennant flag since it happens to be in the shape of a pennant.

Let’s look at another example. This is the classic example of the bull flag on Creative Realities, Inc. (NASDAQ: CREX). You see the flag pole to the left, nearly straight up. In this pattern, the formation looks like a flag hanging down from a pole.

Print these charts out or keep them in a digital journal where you can refer to them often. It’s easy to spot them in hindsight but much harder in the moment.

You gotta study charts so you can learn to recognize them in the heat of the moment.

What Does It Mean When a Stock Is Flagging?

If you hear a trader say a stock is flagging, it means the stock may be forming a bull or bear flag pattern. But don’t jump into the trade just yet…

It could be a false signal.

Again, don’t try to predict. The flag formation may not complete as you expect. So watch and wait. Learn to trade like a sniper.

A stock that’s flagging is setting up for a potential trade. The consolidation period is when you watch and wait.

If the stock can break out of consolidation, that’s when it’s time to trade.

Bull Flag Rules

Bull flag patterns must meet certain criteria. Let’s look at a few guidelines.

First, there must be a strong uptrend — or better yet a vertical spike. This forms the flagpole. Ideally, the price goes nearly straight up. Just like in the examples we looked at earlier.

Afterward, you gotta have that consolidation period. It won’t always look the same, so expect it to vary from flag to flag. We’ve looked at a classic bull flag and bull pennant flag already. We’ll get to two more later in this post.

Last, you know it’s a bull flag when you see a breakout after the first spike and consolidation.

How to Trade the Bull Flag Pattern

With this pattern, buying the breakout is the easy part.

Here’s where a lot of traders struggle: failed breakouts. It looks exactly like a normal breakout — but the pattern fails and the price quickly reverses.

What should you do when the breakout fails?

Follow rule number one and cut your losses quickly.

You also need to set reasonable profit targets. Don’t get greedy. Lock in those singles and remember to sell into strength.

Technical Analysis

First, you need to know which stocks are in play. Need help finding stocks to trade? Sign up for my free watchlist to learn my process behind watching stocks.

Part of my process is to scan for stocks every day. No big surprise here, I use StockToTrade. I helped design it, especially for penny stocks. No other platform can alert you to breaking news and price action as quickly as StockToTrade.

Next, you need to look for the best opportunities. Don’t waste your time with boring charts. Look for clean charts with strong patterns that you’ve learned to recognize through hours and hours of studying.

Only trade when the opportunity is right for your strategy. Otherwise, you can risk overtrading.

Bull Flag Candlestick Pattern

I love candlestick patterns. They’re clean and easy to read — especially when it comes to the bull flag candlestick pattern.

I think it’s easier to see the flag pattern when you’re looking at a candlestick chart. The flagpole might look the same as it does on a line chart, but the flag portion can be more distinct. If you’re looking for bull flag patterns to trade, I recommend using candlestick patterns.

Bull Flag Pattern Trading

When trading a bull flag I prefer to wait for confirmation that the flag is complete. Never buy a stock that you think will breakout.

If you buy too early, you can end up in a bad spot. Even if you’re right, the stock can stay in consolidation for days. If you have a small account, holding trades forever limits your ability to take other setups.

So wait for that confirmation.

I wait for the second breakout after the price breaks through the top of the flag. If the price falls back down, get out. Remember to cut those losses quickly.

New to trading penny stocks? Get my student Jamil’s book “The Complete Penny Stock Course.” It’s a great overview of all my biggest penny stock lessons.

Bullish Flag Formation: Examples of the Pattern in Charts

As I said previously, the formation can look a little different in every trade. Every stock chart is unique. I’ve shown you two examples so far. Now let’s look at two more.

Bullish Pennant: Symmetrical Triangle

In this example, the flag forms a small pointy triangle on top of the flagpole. You can go back to the VYST chart we reviewed earlier.

Classic Flag Pattern

This formation looks like a drooping flag. The support and resistance lines dip for the length of the flag before shooting up in a breakout through resistance.

This is the textbook example we looked at earlier with the CREX chart.

Flat Top Breakout

These are the easiest to recognize because the flat line can be easy to spot. I drew a red line on the flat top in the chart for Kala Pharmaceuticals, Inc. (NASDAQ: KALA) to make it more obvious.

This flag is right at the top of the flagpole, and the following breakout is beautiful. This breakout continues with a nice uptrend.

This is a great example of an uptrend, pull back, and secondary breakout. This is the type of play I like to look for — a nice clean chart.

Differences Between Flag Patterns

Let’s look at some different flag patterns and how you can spot the differences between them.

Bull Flag vs. Bear Flag

The bull flag rises, dips, and consolidates before continuing to move up.

The bear flag is the exact opposite. It looks the same, but the price is falling. After an initial first drop, a flag will form and trend upward or horizontal before continuing to breakdown.

Bull Flag vs. Pennant

The support and resistance lines on a bull pennant flag resemble a cone or triangle. It’s still a bull flag — just a different shape.

The pennant flag narrows to a point, eventually breaking to the high side. Other bulls flags will have parallel lines.

All bull pennant flags are bull flags … but not all bulls flags are pennant flags.

Bull Flag vs. Flat Top Breakout

A traditional bull flag has a downtrend after the initial rally. A flat top break isn’t quite the same as a classic bull flag. But there are similarities, and you can trade them the same way.

The flat top breakout means that first there’s a flat line near the chart’s highs. This line forms a resistance level.

The support level isn’t always as well defined.

A breakout above the flat top line completes this bull flag.

My Tips to Use This Strategy on Day Trades

Let’s talk about smart day trading strategies for bull flag patterns.

Pay Attention to the Resistance

The resistance is the most important thing to watch on a bull flag pattern. It’s what keeps the stock from rallying again. You don’t want to jump in too far ahead of the action.

Continuation patterns like the bull flag can repeat the pattern — hence the name. The stock could give a false signal in the pennant or flag, and then fail to rally again.

Wait for the line of resistance to form, then watch for the price to break out above that line before buying.

If the breakout fails and falls back below resistance, don’t hold and hope. Cut your losses and get out. Hope is not a strategy!

Remember That Stocks Can Offer You a Second Entry Chance

I love continuation patterns because you can rely on them. If you don’t get the right entry the first time around, you can usually go after it again when the stock begins to rally for a second time.

Pay attention to these stocks once you notice the pattern and be ready to jump in. Be prepared!

Know the Importance of Using a Stop Loss

Stops are what keep you in the game long term. Never let a small loss turn into a big loss.

This is the most important lesson I teach my students. And I’ve learned this the hard way through experience. You can read all about how a $500K loss nearly ruined me in my book “An American Hedge Fund.”

Ideally, you set your stop loss where the stock price trends below the breakout point. At that moment, exit the trade to cut your losses. It’s not likely it can rally again.

Follow the Price Action

Never try to predict the next move. Wait for the price action to confirm the pattern.

It’s better to be a little late than to be wrong.

Stock prices move in strange ways sometimes. And there are tons of fake breakouts and fake breakdowns.

Sometimes you’ll be wrong. and that’s OK. There will always be more trades. Learn from your mistakes so you can be better prepared next time.

Master Your Skills with a Trading Mentor

Learning stock patterns can take months — if not years. Trading these patterns is a complex skill to master. I learned the hard way … which is why I recommend getting a professional mentor when you start trading.

Here’s what I wish I had when I started…

My Trading Challenge

When I started I was on my own.

It took me years to master the penny stocks niche. I still make some mistakes today. Every trader does. The key is to keep learning. And I want to teach you to be a smarter, self-sufficient trader. Just like my top students.

My Trading Challenge is a way for you to reduce your learning curve. Will you be my next top student?

Find out if you make the cut … Apply today!


The bull flag pattern is great for newer traders. It’s clean and easy to recognize.

The key to trading any pattern is learning how to manage your risk. Manage the downside and cut your losses if a trade goes against you.

Study these bull and bear flag patterns until you know it well. My top students know just how critical it is to study. The key to trading any pattern is recognizing it. And that comes with lots of practice.

Do you promise to study the bull flag pattern and more? Comment below if you promise to study every day.

How much has this post helped you?

Leave a reply

Author card Timothy Sykes picture

Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”