Flags and Pennants are powerful chart patterns in technical analysis. They are called 'continuation patterns' as the flag embeds prices that are consolidating in a range after a strong move up or down. Price is expected to continue in the direction of the prior move once it breaks out of the flag pattern. This is also why our Bull Flags screen is one of the most popular screens in our trading ideas list.
Chartmill supports finding stocks that show a bull flag or technical bull pennant pattern. The pattern can also be drawn on a chart by adding the 'Chartmill Flag' overlay indicator.
The Bull Flag Chart Pattern
Flag and Pennant
A bull flag is a technical continuation pattern which can be observed in stocks with strong uptrends. The pattern takes shape when the stock retraces by going sideways (or by slowly declining) after an initial big rise in price. When you see the graphical representation of this pattern, you’ll notice that it somehow looks like a flag on a pole.
The bullish flag pattern consists of two important parts:
- RUN UP - In the first stage, buyers aggressively step in the market, driving prices higher. These buyers then attract other buyers, creating a real buying frenzy (also called momentum).
- CONSOLIDATION PHASE - After a while price settles down. This happens because less and less buyers are willing to purchase shares at this point (potential buyers begin to view the stock as too extended). Sellers also begin to come into the market because they don’t want to give up the made gains. When all of this happens, the stock will go into the consolidation phase. It will remain in this phase until (new) buyers or sellers enter the market and disrupt once again this equilibrium.
How to spot these patterns?
Not every bull flag which rolls out of our scanners is a good one. When visually eye-balling bull flag charts you definitely want to check if:
- The run-up before the flag was a clear, fast and huge move with big volume. By a clear move we mean a price run- up that mainly closes near its high each day. We want to spot clear conviction among the buyers. So don’t select stocks that are jumping around and are meeting resistance every five seconds!
- The flag itself is orderly. We don’t want to see crazy price swings. Go for compact, linear patterns that go sideways (or slightly down) in a calm way. We don’t want to see huge selling in the flag, just some mild profit taking at best. Only select stocks that pull back orderly on low volume. This could mean that sellers aren't in a rush to hit the exit! Be sure to double check the news on the stock. Some stocks don’t show any movement in the flag, suggesting there is something more going on.
Flags have multiple properties, which you can filter on. We allow filtering based on:
- The Flag Type: a bull or bear flag? A flag or a pennant?
- The Pole Size: this is the height of the flag. It is the move in percent that happened before the flag formation started.
- The Flag Width: this measures the tightness of the flag and is the difference in percent between the highest and lowest point in the flag.
- The Flag Length: this is the time in days of the flag formation.
- The Timeframe: you can find flags in the daily or weekly timeframe.
So whether you like your flags High or Low, Tight or Wide, Short or Long, Bull or Bear, Flag or Pennant ... we have got you covered!
How to use our stock screener to find descent bull flag patterns is covered in this article.