What's up, everyone? All right? So in this episode, I'm gonna break down for you the bull flag. It is my hands down favorite pattern that I trade as frequently as I see it. I mean, I trade it all the time, almost on a daily basis as an active day trader. Now, this is another episode in the multi-part series on technical analysis and candlestick charts.

and it's our first episode where we're going to talk about a multi-candlestick pattern. We already laid the foundation with what candlestick charts are, and we talked about individual candle formations such as Dojis shooting stars, hammers, etc. And now we're going to talk about the bull flag. The bull flag can never be formed by just one single candle.

It is always a pattern formed by multiple candles. And I'll show you a quick example of the bull flag. You can see it right here on my chart. This is a standard bull flag green candle, three candles of pullback.

First candle makes a new high and it squeezes back up. So I'm going to show you a bunch of examples like this and we're going to break down the anatomy of this pattern and I'm going to talk a little bit about, uh, in what scenarios I am most interested in. Now, before we get into that, you may ask yourself, why is this pattern work so well I consider this pattern to be a buy signal. When I see it, the chart is clearly telling me this stock is strong because the candle just squeezed up so much and this is the first pullback.

It's an opportunity to buy a strong stock, and because so many traders use the same language of the financial markets traders collectively, when they see this pattern, it becomes a self-fulfilling prophecy. As they see it. pulling back, they start accumulating on the pullback. They buy that first kill to make a new high and then early short sellers cover and new traders buy as it goes through the high and you get this extension and it happens again and again and again.

So your job as a trader is to try to learn to predict the future. I've already said that now it's easier said than done. but we use stock charts to help us understand the context of the current price, and through these patterns, we're able to draw conclusions with some reasonable level of certainty that when we see this pattern on the right type of stock, more often than not, it results in the stock breaking to the upside. Okay, so let's jump over here to the white board and let's draw out a bull flag.

All right. So a bull flag, uh, can be formed by just simply one big green candle, but more often than not is formed by several green candles in a row. This can be on any time frame. It can be on a daily chart, a five minute chart, a one minute chart, a 15 second chart, a 10 second chart.

It doesn't really matter, it could be on any time frame. The pattern is the same. Green candles moving up, followed by red candles coming back down. Now there's a couple of important things we're going to talk about that make this a valid pattern.

Okay, so first candle to make a new high is the entry. So let's say the high of this candle is, uh, four dollars and 15 cents. What's your stop? Your stop is the low of this candle. Let's say that's four dollars.

That means you're risking 15 cents. What's the high of day? Well, that's your profit target. And let's say in this case, the high of day is uh, 450. So then your profit target is about 35 cents.

which in this case is a fair reasonable two to one profit to loss ratio. So if you got in this right here, you'd be looking to buy as soon as this candle, which may be opened here as soon as it breaks through 4 15. That's the place I buy now. Sometimes I'll buy a little early at 4 13 or 4 14 to anticipate that break if I already see volume coming in, which is telling me that people are actively buying up this stock.

We look for the break through that level and then continuation through the highs all the way to another pullback where we would then look for a second bull flag. Now, usually the first and second pullbacks are the best and let me switch to the slides here because an important thing to note is not just the candlestick pattern, but also the candlestick shape. Notice that we do not have doji's at the top of this pattern. So if you end up having a doji at the very top, let's say for instance, that this candle and I'll go back to the whiteboard that this candle right here opened at this price, it squeezed up, but then it closed red like that.

Well, that's a shooting star candle. That's not great. It doesn't mean that this pattern won't work, but suddenly that puts a red flag on the pattern and this is something that a seasoned trader would certainly recognize. In addition to the formation of the candles that form the top, the bottom down here, it's totally okay.

If this candle has a bottoming tail like that, there's no problem with that. But if this candle has an upper wick like this, that's no good. Why? Because that actually formed a false breakout and it would have been a premature breakout. Now, it's true that when you're taking a bull flag set up, you don't know is certainty that the candle where you're buying.

So let's say right here you got in. the candle opened, you got it at 4 15. it went up a little higher and then immediately reversed and dropped down. The candle then turns red and closes like that.

What kind of pattern is that? False breakout? However, while false breakouts happen, you can avoid false breakouts by making sure you are only trading bull flags on the right stock to trade. When you start trading the wrong type of stocks of trade, that's when you get yourself in trouble. Now, what we're talking about really here in this episode and through this multi-part series is technical analysis. We're talking about candlestick charts and and how to read charts for day trading.

So I'm not really getting into a lot of uh, or really any strategy development as part of this series because that's sort of a whole nother level. This is laying the foundation. However, if you want to learn a little bit more about strategy development, I will put a link down in the description. You will see a link to download my Pdf and it's a micro pullback strategy.

So that strategy is around how I trade and the type of stocks I trade. The micro pullbacks pattern on a micro pullback is when you get them just a very quick pullback like this and then immediately continue back up and I'll show you a couple examples of that in a moment. So check that out down in the description below. If you want to learn a little bit more about strategy now, let's jump over here to the bull flag pattern.

So in this particular instance, as you can see on the chart, this was formed by one green candle and then three red candles. first candle to make a new high right. there is your entry, then you're looking for a move back up. This does not have one critical component: volume bars.

So now we're going to add the volume bars we're layering knowledge on. here. We're laying the foundation for this pattern. We first look at the actual candlestick shapes, the candlestick pattern, and now we're going to talk about the volume profile.

The ideal volume profile. We want to see high volume on the move up, a light volume on the pullback, and then volume come back in as it squeezes back through the high. So I'm going to switch back to the white board here and let me show you this: Uh, this is a different drawing here. so we've got the stock squeezing up and right down here.

I've drawn volume bars increasing volume as it moves higher, light volume on the pullback. right? Here this is and this represents the first pullback and then we want to see high volume coming back in right here as it makes new highs right there. That's what we want to see. This is the perfect volume profile and we want to see that volume here is increasing as the stock is moving higher Because that tells us that traders are getting really excited about it.

More traders are buying and we're getting a bigger breakout. Now this example right here. This could be on a uh, it could be on a one-minute chart. It could be on a five-minute chart.

It could even be on a 10-second chart. So let's just say for instance, that this is a 10 second chart. That means each one of these candles represents 10 seconds of time. So this is 10, 20, 30, 40, 50, 60..

So this right here is the end of the one minute candle. So what does that one minute candle look like? Well, it's green. It started low, it went way up there. but then it closed about here.

Okay, so that is approximately the shape of that candle, so we would fill that in. It's a green candle, but it's got a little bit of an upper candle wick. Now I would have been a buyer on this chart right here on the micro pullback for the first camel to make a new high on the one minute. When you look back at that chart, you'll see a stock that opens here and just continues going up.

So you just have two big green candles. and you might say Ross. I don't understand why you got in right here. What was that entry? and I'm going to tell you that entry was the micro pullback that was right here as it dipped on the 10 second chart.

That was my entry. Now let's switch back to the screen here and let me show you and let's talk a little bit about the anatomy of the bull flag pattern. So a bull flag has the following characteristics. Generally, we have three green candles moving up, followed by two or more red candles pulling back.

Sometimes a bull flag can be created by just one huge green candle, but it's usually better when it's several candles kind of increasing in volume as they're moving higher and then two candles pulling back. Now, those two candles pulling back cannot create false breakouts or the pattern is broken. A perfect five minute bull flag would pull back to the nine ema on the five minute chart. So we haven't talked about moving averages yet as part of the series.

But just so you know, a moving average generally trails behind the price like this. And so since this, if let's say this was a five minute chart, it didn't touch the nine moving average. It's a little extended off that level. That creates a little bit of risk.

If it, uh, the nine moving average was right here, then that would be almost picture perfect. And I'll show you a couple examples of that sort of picture perfect pattern. Yeah, and again, the nine moving average is valid as an exponential moving average. Whether it's on the one minute or the five minute chart, you're still looking for that pullback to the moving average because it's a pullback to support.

That's how traders recognize that this is an opportunity to buy a strong stock for the next leg up. The entry point is the first candle to make a new high after two consecutive red candles and a top of the nine moving average, which is perfect scenario with your stop at the low of the pullback. However, a bull flag should not retrace more than 50 of the move up. So let's get back to the white board here if we have a stock that squeezes up here on several green candles in a row and then it pulls back like oops, all the way down.

If we have this really sharp pullback, that's going to be a broken pattern, this is not clean. This is retraced more than 50 percent of the move. I measure 50 based on where it started and the top draw approximately at the halfway point, and I'm okay with a gradual pullback down to 50 right and then the move back up, but I don't want it more than 50. I would also note that if you have a scenario where you have this green candle and you have high volume and then the pullback just becomes this kind of gradual sell-off it just keeps not going higher.

This I'm also going to lose interest in because if the stock is truly strong, it's not going to pull back for this long before the next leg up, you'll pull back at most for maybe four candles before the first candle makes a new high. When you get to five six pullback candles, traders are just not interested in buying this pullback for whatever reason. Now that could be that someone is unloading a big position they're selling and they're preventing the traders who are buying from seeing that breakout. Or it could be just that.

For whatever reason, this is not the right type of stock to trade because traders are not interested. So let's jump back onto the screen. And now let me show you a chart. example of a bull flag.

So here we can see a stock that had seven green candles in a row squeezing up a pullback here. and this pullback is right to the nine moving average the nine Ema. We've got one red candle, a second red candle, and then this candle is green. Now some traders who are more seasoned and perhaps more confident, may have felt comfortable buying this off of the psychological support of approximately 350, which is like right down here, that's going to be a little bit of a riskier entry.

that's going to be a strategy, an intuition based decision. But this pattern does not give us confirmation until this level. Right about here. When this green candle breaks the high of this candle, that is your confirmation of your entry.

Now a lot of trainers who are have a lot of experience will begin taking trades to anticipate breakouts. The only problem with taking trades to anticipate breakouts is that if you're wrong, you're getting in. You're going to look back on that pattern and you're going to realize it never actually gave me the green light. It never gave me the buy signal.

I got in a little early thinking it was going to happen. So if you're going to get in the habit of getting in early to anticipate, you want to make sure you're managing your risk. All right. Here's another example.

Now, this one's kind of interesting because this actually has a doji at the top of the pattern and it's on higher volume. and it's a red candle, so that's a little bit of a red flag there. It pulls back and we actually have four candles of pullback. And there are four dojis in a row.

But even still, the first camel that makes a new high does end up giving us a squeeze. Now, this could be a combination of some traders who started to short in this area thinking, okay, it's a doji at the top, it's probably going to fade and then being forced to cover as it makes new highs. And it could also just be that the news on this stock on this particular day was strong enough that traders went ahead and jumped in it. Despite that doji and it could be.

Also, the daily chart was really strong and so people were willing to take the risk. In any case, they got rewarded as it went from about 275 all the way up to 320. that's a nice trade Now this is another example here. This is actually a good example of a micro pullback.

So here we have the five minute chart squeezing higher and on the one minute we're getting the first pullback after a fresh five minute breakout. I'm always watching these closely. First pullbacks on fresh five-minute breakouts on the right type of stock to trade. That's very important.

The right type of stock to trade often get bought up, so the first candle to make a new high on this is at 418 max losses down here around 410. So it's only eight cents of risk and immediately you break through 423 and continue up towards the half dollar of 450 topping here at about 413.. all right now. and by the way, this is also a five minute bull flag that just occurred here.

So this is the micro pullback right on this time frame. This is kind of an interesting example here because this is our first five minute camel to make a new high at about 380.. But notice that the top of the move is uh, one doji and a second doji forming a double top. So that was formed right here and right here.

Because these candles close this little block. Here is five minutes of time from 11 20 to 11 25.. this is 11 25 to 11 30.. So this five minute candle actually closed right here.

And then the new candle opened it double top at the same level and then pulled back, it retraced and came back up. He pulled back and then right in here. Some traders you can tell got in right there to anticipate that break on the five minute chart. So the five minute chart was forming that pullback and some traders got in a little early, most likely watching for multi-time frame alignment.

But those who missed it still had the opportunity of buying the first pullback on the one minute following the fresh breakout. And this is a third example. Here's a fourth example. You've got one, two, three, four, five green candles in a row.

Two counts of pull back. Note: the volume is a little higher on this red candle. it pulls back. we have this small green candle and then first count make a new high.

So 418 was the low. 424 is the entry. That's a six cent stop that's not bad. Profit Target up here was first through the high, we got that break and all the way up towards 450 which is a pretty nice return about a four to one profit to loss ratio.

If you got out at the very top, if you scaled out as it squeezed higher, you probably got a two to one profit to loss ratio which is still very good. So one of the things that you have to be really mindful of as I think you can already tell is that you're trading the bull flag on the right type of stock. By itself, a bull flag is simply a pattern. The degree and the probability whether it's going to break to the upside or just go sideways or break to.

The downside is going to be based on factors beyond just purely the technicals of the chart. It's going to be based on the price of the stock, the flow of the stock, the relative volume of the stock is the stock. a leading gainer today. Does it have news? Does it have a catalyst? Is it an obvious stock that everyone is looking at? Because if it is, then a lot of eyes are going to see the buy signal and the sell signal.

If you're looking at a stock that not a lot of other people are watching, not many people are going to see those buy and sell signals. They won't be respected as well. You won't see the level of volume at the breakout that you need for the trade to work, and you're going to be frustrated. So keep studying, keep learning.

And if you want to learn about the next pattern, we're going to talk about the Abcd pattern. You can check that out right there.