Spotting the Bull Flag Pattern
As mentioned earlier, the bull flag is a continuation pattern. Therefore, we are looking to identify an uptrend - the series of the higher highs and higher lows. The second step in spotting the bull flag pattern is monitoring the shape of the correction.
In the chart below, we see GBP/USD price movements on a daily basis. The flagpole (the blue ascending trend line) covers the beginning of an uptrend. After a short-term peak is created, the price action corrects lower to around 50% of the initial move.
In this case, the consolidation takes a bit more time than usual, but it is not an aggressive correction lower. The price action actually moves more in a sideways fashion, but still with an overall bias lower, as the buyers consolidate their power. Finally, there is a break to the upside, which takes the price action aggressively higher.
If you look at our example more closely, you can even spot a mini bull flag, where the breakout of our flag is actually a flagpole in the mini pattern, while the correction above the upper trend line resembles a flag (see chart below). Overall, both are bullish patterns that facilitate an extension of the uptrend.
In both cases, a breakout occurs in a strong manner. After a series of the smaller candles, the buyers reassume control of the price action and break the upper trend line to the upside, which activates the bull flag pattern.