Bulkowski’s Flags

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Flags appear as small rectangles usually tilted against the prevailing price trend and mounted at the end of a flagpole. If you don't have a straight-line price run (the flagpole), then you don't have a flag. The best performing flags have a long, near vertical flagpole. For more information see pages 335 to 349 of the book Encyclopedia of Chart Patterns, Second Edition and read the following...

Important Results

Identification Guidelines

Trading Tips

Example

Important Bull Market Results*

Overall performance rank for breakouts: Not applicable

Break even failure rate for up/down breakouts: 4%; 2%

Average rise/decline: 23%; 16%

Throwback/pullback rate: 43%; 46%

Percentage meeting price target for up/down breakouts: 64%; 47%

* The performance results for flags are based on the short-term price swing, not the change from the breakout to the ultimate high or low as in most other chart patterns.

Identification Guidelines

Characteristic	Discussion
Price trend	Can be any direction leading to the chart pattern.
Shape	Looks like a small rectangle often tilted against the prevailing price trend
Trend lines	Prices move between two parallel, or near parallel, trendlines.
3 weeks	Flags are short, less than 3 weeks long. Patterns longer than that are rectangles or channels.
Flagpole	The flagpole which leads to the flag should be unusually steep and last several days.
Volume trend	Downward trend 71% of the time.
Breakout	Upward 54% of the time.

Trading Tips

Trading Tactic	Explanation
Measure rule	Compute the height from the start of the price swing (point A in the measure rule figure to the right) to the end of the price swing (B) and then multiply it by the above “percentage meeting price target.” Add it (upward breakouts) to the bottom of the flag (C) or subtract it (downward breakouts) from the top of the flag (C) to get the target (D).
Half staff	The average move from the trend start to the top of the flag is 22% in 15 days. The move from the flag low to the trend end is 23% and takes 19 days. The half staff figure to the right shows an example.
Flag tilt	Performance suffers when the flag slopes in the direction of the prevailing price trend. The flag tilt figure to the right shows an example of price tilting upward in a rising price trend.
Flat base	If the flag appears above (upward breakouts) or below (downward breakouts) a flat base then expect the move to be a large one.
Tight flags	A tight flag performs better than a loose one. A loose flag is one in which price meanders, pokes outside the trendline boundary, contains white space, or looks jagged. The tight v. loose figure to the right shows an example.
Yearly middle	Upward breakouts perform best within a third of the yearly high. Downward breakouts do best within a third of the yearly low.
Throwbacks and pullbacks	Throwbacks and pullbacks hurt postbreakout performance.

The Measure Rule

Half Staff

Flag Tilt

Tight v. Loose

Example

Flag with flagpole chart pattern example

The above figure shows an example of a flag chart pattern. The price swing leading to the flag begins at A and ends at the top of the flagpole, B. A short flag shows for a few days and then an upward breakout takes price higher.