Bull Flag Pattern Formation
Bull flag is a sharp, strong volume
rally on a positive fundamental development, several days of sideways to lower
price action on much weaker volume followed by a second, sharp rally to new
highs on strong volume. The technical target is derived by adding the height of
the flag pole to the eventual breakout level at point (e).
• Bull flag formations
involve two distinct parts, a near vertical, high volume flag pole and a
parallel, low volume consolidation comprised of four
points and an upside breakout.
• The actual flag formation
of a bull flag pattern must be less than 20 trading sessions in duration.
• Most flag patterns occur
at the middle of the larger move higher for a stock.
• Upside breakouts often
lead to small 2-3% rallies followed by an immediate test of the breakout level.
If the stock closes below this level (now support) for any
reason the pattern becomes invalid.
Bulls flags are favored among
technical traders because they almost always lead to large and predicable price
moves. Like all continuation patterns, bull flags represent little more than a
brief lull in a larger move higher. Indeed, in many cases the flag pattern will
actually take shape in the middle of the ultimate move higher. Bull flags occur
because stocks rarely move higher in a straight line for an extended period,
instead, the move higher is broken up by brief periods where traders
"catch their breath".
The first part of the flag pattern is
often called the flagpole or mast. During this phase the stock price skyrockets
to a reaction high (a) on some positive fundamental development. Very often this will
be the unveiling of a new product, a favorable legal resolution or positive
earnings surprise but the change in price is near vertical as would be sellers
are overwhelmed by new buyers caught-up in the euphoria of the moment. As the
stock soars speculators that were smart enough to have purchased the stock at
lower levels begin selling.
At this point the second phase or flag
portion of the bull flag begins. Because the flow of news and investor sentiment
is overwhelming positive, most of the stock sold by speculators is easily
absorbed in the beginning but as time passes fewer investors seem willing to
pay the current price. Slowly, the stock price begins to falter on dramatically
reduced volume. The descent is slow because bullish sentiment is still very strong.
Target Calculating:-
Hight of the Pole from is 494 (1308 - 1802) and we have seen pattern is just
forming where it is reverting from the lower trend line support at 1555 and is
just trading at 1580$ level. In immidiate term we expect gold to test the
higher resistance trend line at 1790$ and may take a short resistance there and
there after crosover will bring to the target of 1825$ which will be rise by 2%
of the Price, as per the Bull Flag pattern it will give a short profit booking
from higher level and retes the breakout trend line at 1790 – 1800$ level and
will again enter in the uptrend. On higehr sdie from the breakout pattern above
1790 adding the pole difference expected target comes to 2285$ on higher sdie
which can be seen in medium to long term. On lower sdie there is multiple
support seen at 1550 – 1535 range; closing basis on weekly chart below support
level will confirm the down ternd to continue which is diffuicult at this point
of time.
