Knowledge is the only way to decipher the crypto world. With an in-depth understanding of the charts, traders can even make profits during crashes and rallies. Every trader, even a novice, has heard of the bull flag pattern among other technical patterns.
If you’ve read a few articles about bull flag patterns but still don’t understand them entirely, you’ve come to the right page. In the article, we are decoding the meaning of the “bull flag pattern,” why it occurs, and how to trace it.
What is a bull flag pattern?
The traders in the cryptocurrency market heavily rely on charting, also known as technical forecasts. The chart frequently shows a variety of patterns that predict how the currency will move in the future. One of them is the bullish flag in crypto. The appearance of the bull flag pattern suggests that the market is about to undergo a significant correction. Simply put, a rally is imminent for the market.
A mast that could be seen on either side of the parallelogram-like pattern indicates trend consolidation. The pattern appears when the market is extremely volatile and is either plummeting or rallying. A bullish flag in crypto is characterized by a flag of consolidation that is horizontal or downward-sloping and that is then followed by a sharp increase in the upward direction or the breakout. The said pattern is used when a market is strongly trending or after a breakout.
How to recognize a bull flag pattern on a real-time chart?
An appearance of a bull flag pattern is a solid hint that the token will soon improve significantly. The traders who successfully identify the pattern take home a sizable profit on their revenue chart. Understanding the bull flag pattern is essential because even a small error can result in major losses. Here is how you can identify a bull flag pattern:
- The line chart forms a solid pole that shows the token’s sudden increase.
- Later, as the volume decreases, the chart displays a flag-like pattern on the pole’s top.
- After that, there is a fairly large volume of the currency.
The bull flag profit target can also be calculated using the price difference between the flagpole’s base and its highest point. Projecting the measured move to the upside beginning at the breakout point will help you determine your precise profit target.
The bullish flag in crypto represents a transient trend. However, it can stay for one to six weeks. The pattern has a more lasting effect than expected. Since the formation of the flag, the price has been rising, and it will keep doing so until the pattern is identified.
The most important sign while identifying the bull flag pattern is that after the formation of pole, there would be a small correction before the next jump. The volume of the currency also fluctuates during the correction period.
How to trade with a bull flag pattern?
It can be very advantageous for traders to trade with a bull flag pattern. If you have seen a bull flag pattern, you can take the following action:
- Step 1: Stop the pattern and check the volume of the currency. The coin will exhibit a smooth increase in volume and price.
- Step 2: Mark the consolidation zone to ensure the bull flag pattern. As was previously mentioned, the coin typically falls slightly after the formation of the pole to create the flag.
- Step 3: The flag is complete when the consolidation zone breaks out and starts recovering. Simply put, the currency rallies after falling, completing the flag’s pattern.
- Step 4: You must place a stop loss order. Typically, putting a stop-loss order while trading with the bull flag pattern can save the day.
- Step 5: Traders should monitor the price breakpoint. However, traders have complete discretion over whether to sell the token.
Advantages and disadvantages of the bull flag pattern
The chart’s bullish trends are very trustworthy. Many traders have benefited from it in the past, and it will do so in the future. Despite the fact that trading is inherently riskier than investing in commodities, futures, or cryptocurrencies, technical analysis has repeatedly shown its worth. As a result, new traders can depend on these indicators to close profitable deals and accomplish their objectives. However, the bullish flag in crypto does have some advantages and disadvantages, here are they:
- It aids in locating a distinct stop-loss position and generating significant profits. It is a great indication for day traders and those seeking an easy exit.
- The pattern offers traders a precise risk-to-reward scenario. This indicates that it generates higher profits than the initial risks.
- Bull flag patterns are easy to spot and straightforward to identify. Market newcomers can quickly identify the pattern and book profits.
- The key disadvantage of the bullish flag in crypto is the misinterpretation of movement. People have suffered repercussions resulting in heavy losses as, despite the indications, the market scenarios went sideways.
The bull-flag pattern is fairly common on the charts. However, investors should be aware that trading has risks as well as rewards. Trading strategies and pattern recognition are merely predictions of the future; they do not represent reality. Anyone interested in investing should be aware of their capacity for risk because trading on the cryptocurrency market is very unpredictable.