Making Money on the High, Tight Flag Pattern

October 9, 2013 by  
Filed under Chart Patterns, Hot Stocks, Swing Trading

 

The bull flag or high, tight flag pattern is arguably the most bullish chart pattern.  This pattern often leads to some of the largest gains of the year in the market.  Very often this pattern will precede a move of 50% to 100% or greater.  Within a few months.  And sometimes the move happens in just a few weeks.

 

On a chart the pattern looks like a flag pole with a flag or pennant on top and pointing to the right-side of the chart.  Its pretty easy to spot once you see it the first time.  Here is an example from an issue of our Weekly Alert newsletter. 

 

 

The horizontal lines shown in the chart above mark the support and resistance in the flag portion of the pattern.  The flag portion of the pattern should have low volatility as it does in this case.  And the rise into the flag needs to be very strong.  A 20%, 40% or even 80% move into the flag within a couple of months is NOT enough to qualify as a bull flag pattern. 

 

The entry point is a break above the top of the flag or a close above the short-term downtrend resistance if the flag is shaped more like a pennant.

 

This was our top trading setup that week in our newsletter.  It quickly surged about 30% higher within just 2 weeks after we featured it.  These gains are unusual in that time-frame for most stocks. 

 

However, its quite common out of this pattern.  We find this especially true for stocks with rising estimates that tend to beat those estimates and stocks with very strong, consistent earnings and sales growth.  The only type of stocks we trade and feature in our newsletters.

 

Some of our most exciting and profitable trades came from stocks with rapidly improving fundamentals breaking out of a bull flag pattern.  And this time of year they begin to show up on our radar more and more.  Although a little rare on quality stocks, from September through May you will find more of these very powerful setups. 

 

A safer target for this pattern is a 50% projection of the initial move into the flag over the past couple months.  Projected from the bottom of the flag portion of the pattern.  On a momentum trading pattern like this we almost always put in an OCO order with our online broker.  Which is a limit order for our target sell price and a stop-loss just below the bottom of the flag portion of the pattern wrapped up into one order.

 

Make sure you find all of the quality bull flags available in the current market or subscribe to a good service so you will not miss out during the “high season” for these monster trading setups.  Just be sure the underlying fundamentals are rapidly improving to justify the higher prices.  You will be very glad you put these on your radar.

 

 

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