BULL FLAGS
Thought this may be of use for some pattern traders here ....this was posted on the KDR chart threads which has a cuurent bull flag setup in play... Note Chart below is a few days old but bull flag is "still in play" at close today.
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"Bull Flag Theory" says flag pole measurement is from start of rally (so 15.5c Pre-gap) to top of spike 37c and target measurement from lowest point on flag which was 25.5. ...So 21.5 + 25.5 = 47c approx. So you are spot on!
Pattern trading is not an exact science (as someone mentioned ) more of an art form and unfortunately, and in reality, gives you a "ball park" target only so assuming it "confirmed" it may not make it to that high or may in fact go a bit higher. The underlying premise behind flags, triangles, pennants Etc is simple in that the stock is trading in a hidden, but steep upward channel with touch points on the channel boundaries being start of spike and the top of flag pole and bottom of flag... Confirmation will, for me at least, be when the stock trades above the upper edge of the flag with a noticeable uptick/increase in volume on crossing.... Only at that point do the "projected targets" come in to play.
Often stocks will reach the target only to retrace a bit and continue on higher a few days later ... why ? Its because the flag formation is the short term child to the underlying and more dominant parent uptrend channel which in fact is the dominant tech feature but channel may not be evident early on. Finally, and obviously, bull flags and other uptrend child patterns (Pennants/Triangles etc ) are less predictable in bear markets (say 30-50% accuracy) whereas in bull markets much more accurate 60-80% in my experience
