Bull Flags and Great Follow-on Moves
3 weeks ago it was EGAN making a 40% move within a few days after reaching our entry point in a bull flag chart pattern – the strongest consolidation pattern.
The week after that, we saw TNDM soar 20% in about a week and a half after being featured in the Daily Alert near a great entry point in a high, tight flag pattern.
Last Monday we mentioned LONE breaking out of a very strong bull flag pattern in the closing remarks of the Daily Alert. LONE soared 25% from the breakout point within 4 trading days.
2018 continues to be the year of the bull flag pattern.
But sometimes you miss the initial breakout out of a high, tight flag pattern.
You might be caught up in another trade or other opportunity that initially looks better.
However, if the breakout is strong enough there is another high percentage trading setup sometimes referred to as a “follow-on move”. This is where a stock makes a big move one day then breaks the high again the next day and usually continues quite a bit higher.
Most short-term swing traders will not make much distinction though between LONE last week and other stocks that made a big 1 day move.
What they do not realize is that the long-term trend over the past year and the quality of the consolidation prior to the breakout are both key signs that this is a really good opportunity from a pure technical standpoint. In the case of LONE, you had a strong uptrend leading into a well-formed bull flag pattern with a long, narrow consolidation in the flag portion of the pattern.
Not only that, you also had monster volume on the day of the breakout along with a strong close. This sets up a good follow-on trading setup but only if the price breaks the high again the next day. Also, we want to see this occur early enough in the trading day.
A follow-on move of about 7% to 15% is pretty typical when you have the very strong trend, consolidation pattern and powerful breakout.
In the case of LONE, it made a 12% “follow-on move” within 24 hours after reaching the technical entry point before a pullback.
But we always look for very strong volume and around a 10% move or better on the day of the breakout. And, of course, a break of that days high the next day (the the technical entry point). Ideally, with no overhead resistance to speak of.
In our upcoming video training series on the bull flag pattern I share my favorite techniques to lock in profits on these amazing swing trading setups. You need to have a plan in place in case the stock takes off and goes up 20% to 40% within a week or so out of this pattern. The video training series will cover how to handle this situation in detail and capture huge profits at the right time.
As we all know, timing is everything in trading whether day trading or swing trading.
The bull flag pattern does not always turn into a big winner. For instance, BOOM took several weeks to make a big move out of the pattern. TTD was the target of a bear raid by a well-covered short-seller right after a breakout. Of course, they chose a slow Friday afternoon during the summer as the price was starting to move strongly against them.
So preparation is key to know exactly what to do when this occurs and what your stop-loss point is when the price does not move in your favor. All of this will be covered in the new video training series coming out in mid-August.
Stay tuned and be sure to have these powerful chart patterns on your radar – especially later in August and this Fall when we tend to see the biggest moves out of this technical setup on top stocks.