In this video for the trading community, learn how to effectively spot and then trade the classic Bull Flag pattern to profit. A proprietary trader from our firm shares in step by step detail how he used the Bull Flag technical pattern in QCOM to make a winning trade.
View Video Transcriptin this video for the trading community
learn how to effectively spot and then
trade the classic bull flag pattern the
profit I’m Mike bellafiore co-founder of
SMB capital and we’re a proprietary
trading firm located in midtown
Manhattan and I’m also the off of the
trading classic one good trade in the
playbook
in this video lesson a proprietary
trader from our firm shares in
step-by-step detail how he used the bull
flag technical pattern and cue calm to
make a winning trade
[Music]
so today we’re gonna go over the Q
qualms dr. s volume breakout trade so
just very quickly with the dr. s pattern
is is that we see institutional buying
or selling on the open followed by a
very tight consolidation and then after
that we’ll see the next leg of the trade
on pretty decent volume so just very
briefly big picture overall bull markets
by new highs the market was slowly
grinding up during this time period
pretty much every dip was being bought
and then breakouts were still working
during this time period the reason for
the Q calm move in the morning was
presumably a city upgrade and just
overall the spy was rallying and we saw
just kind of the volume come through so
just the intraday fundamentals
institutional buying right on the open
and then there was a bull that pattern
that was very tight and there was no
volume on the downside this is a classic
bull flag pattern and it was showing us
that the institutions were supporting
the stock there’s some quick stats the
ATR was is 1.9 the average alarms is a
7.9 million our ball was three so this
was elevated there’s basically no short
float and the institutional ownership is
eighty percent which so you read about
these these these banners these
technical patterns this is really a
classic bull flag pattern we really have
a live example of that I believe so we
captured it yes so just very briefly be
a daily chart we see that it’s breaking
out to new highs for the year
I’m good volume so overall this
definitely sets up well for a follow
through throughout the whole day and
then as far as the actual pattern that
we see we can see that there was a
strong move off the open that was on
strong volume and then during this
entire period of consolidation there was
effectively no real spikes in volume so
the the flag being this extension higher
or the board this year the leg being
Poul yes I don’t whatever you want to
call it being the this move up here the
flag here and then the breakout on one
of the strongest volume bar days of the
trading session would constitute the
breakout
I’m just really this definitely sets up
well because you can have a pretty tight
stop realistically like the stop for
this trade should be right below the
bottom of the flag if this actually
follows through it’s possible to even
say that it shouldn’t come back below 94
but that kind of depends on your trading
style and yeah so we’re gonna go over as
well as the trade management as well as
what we saw on the tape let’s just go
back to the flag this really is one of
those classic technical setups so we’re
doing it on intraday as opposed to maybe
a daily chart but also where are we with
Q come on a longer-term chart so we are
right here
it was around 94 so there was kind of
like a gap from arguably a consolidation
pattern we are pressing up against prior
highs and given the strong volume on the
day that would be a good sign that we
could break those ties so the second
part of this tray would be once you
cleared this level which was
approximately ninety four as well then
Li you should get follow-through and
buying because we’ve kind of cleared
that all that volume and just kind of
the resistance that was present in it
let’s go back to the bull flag and so
where are we in terms of price with the
flag so the flag was taking place
between 93 60 and 90 for the breakout
was 90 for the opening price was a
little bit below 93 so the measure moved
for this which is one way where you can
actually set up price targets would be
to take this extension and then add
to the breakout so realistically this
was approximately a $1 move so then you
can say that a price target for this
breakout would be 95 so if you were to
of let’s say bought this right at 94
once it broke which was what my trade
was and put the stop I around 93 60 or
70 it’s risking around 30 cents and the
ultimate target on this trade was $1 so
I don’t know 3 the 1
yeah and just for the newest guys in the
room why does a bull flag work what is
that saying about the overall strength
or weakness of the stock and and and
what it’s saying is so you know bull
flag is we have a nice move up we have a
good price push to the upside we have a
good price push to the upside on
elevated volume okay and you know so
that’s that flag part that max is
pointing out and so that and of itself
is indicating there’s a lot of by
interest the elevated volume and the
actual pole the price movement is
showing increased interest in the name
okay so there’s that first part and then
so when you have something that goes up
a bunch and goes up a bunch on high
volume how can how does it normally
react how does a stock after it has a
big push up normally react
yeah pulls it it pulls in a bunch and so
if you have this flag pattern where the
stocks not really pulling in much and
not only is it not pulling in much but
it’s not actually even getting below a
particular level as its pulling in and
it’s going sideways what that’s telling
you and the reason why this is a pattern
worth looking at is that there was by
interest and it’s not in any way pulling
in as much as we thought which means
there’s potentially more buy interest
there’s probably more buy interest or
else it would have pulled in more that’s
not the way stocks normally act it’s
it’s acting very strongly so we’re not
just presenting this technical
as an intellectual exercise there’s a
reason why this can be an effective
pattern there’s a there’s a reason based
on the price and the volume action and
the pullin action why this is a powerful
pattern alright they’re the buyers are
leaving footprints to you with this
technical pattern that this is more
likely to go up from here and as Max
said perhaps even a measured move higher
but much more to go based on how it’s
acting and then when we add on top of
that the fact that it’s getting ready to
bust above a longer-term resistance
level that’s gonna add some buyers
buying some shorts covering and a
potential interesting trade yes so as
far as the actual trade management for
me I ended up only buying it on the
breakout but if you wanted to actually
go in and see what would be kind of the
perfect trade management it would be to
then go long tear one somewhere in this
bull flag after recognizing the pattern
so that way you can get a pretty good
average price and then once you actually
saw the volume as a confirmation on the
break to then go with tier 2 and then it
would be to take off that momentum tier
once you see a end in momentum so it
would be in my opinion on this red bar
or it could also be so on the tape
going into this like round number like
many times that you’ll see that the that
the offers are stacked so presumably
selling into a 95 would make sense as
well and then you would leave tier 1 on
as kind of a core position and for me I
like to use each higher lows as stops as
just kind of one way to manage the trade
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online education so I actually did take
as more of a scalp trade this second or
this double bottom here and just kind of
like my thinking was was that this level
was being kind of supported overall
throughout the day we seeded that at
like momentum I like to use sometimes
just like MACD just to kind of gauge
momentum in the stock and we see that
this price was supported so buying as
we’re starting to actually see price
turned back up the stop was only
probably 20 or 25 cents and my target
for this was was this prior high so then
as we started kind of getting back into
this area I started closing it out my
thinking was that there could be some
sellers back at this point and at that
point I already captured around I think
it was 60 or or so since I was 20 cents
and around 5 6 minutes or maybe like 10
minutes so just overall it was smart to
lock in profits and it wasn’t as though
that the price was that absolutely
shooting up on very strong volume this
was mid day so the odds for a you know a
parabolic move especially given the fact
that there wasn’t a huge fundamental
catalyst was probably slim so that was
reason for my sell going into here and
just kind of what we saw on the tape was
that once 94 hit the prices actually
started to skip very quickly so I
automatically went in right on that 94
break I got in at 94 o 6 and then it
quickly went to 94 24 so we actually saw
a very quick jump in price and this is
just something that I will remember next
time that when you see that significant
jump price because I mean I usually
Qualcomm will trade by the penny and or
maybe they’ll be Oh
2 or 3 cents skip but for something like
this to actually skip up 20 cents is
quite significant and could be
sign that he’ll actually follow through
and usually a lot of selling at 94 Oh
194 Oh 390 405 yeah 7 and we didn’t get
that we got a nice skip all the way up
to 94 24 which you know means that
there’s buyers that are just running
over the sellers yeah and then once we
actually got to this price I think for
only 30 seconds price was being
supported around 94 16 17 so it was
showing you that there definitely were
the buyers there to actually follow
through on the stock so like something
that I might do next time is that if I
see a name like this have that jump and
volume to actually add a much larger
size versus a tighter stop because IKEA
retic Lee if this trade is gonna work
out once again there should be almost no
pullback so there should be no reason to
have a stop that’s more than for this
case I’m gonna probably just put it as
it I don’t know when you make a good
point which is a lot to talk about
volume so we want to see volume
confirming a breakout but volatility
confirms the breakout – so when there is
either a lot of volume which is just
bowling over there sellers and a stock
moves more than you think it should so
something gets above 94 you might say
maybe it’ll go up to 94 10 and that
would be a regular move and then it goes
up higher that is that is of interest
and so it might be that just the volume
comes in and and and creams all the
sellers but there can also just be a
liquidity issue which also shows
strength because it means what if
there’s a price that’s bigger than you
think and there isn’t necessarily the
buyers crush in the the sellers and
that’s making it move up what is what
can that but the stock moves up a lot
and maybe goes above 94 goes up to 94 94
40 and you don’t necessarily see a lot
of paying the offer just kind of finds a
way to get there what does that also
mean so you get that volatility move
it’s up 30 cents more than you thought
and when there’s an absent sellers
it means the sellers are interested in
selling here
okay that could be that can be good to
that so it’s volatility and it’s volume
very important to notice around
important areas of the volatility
particularly when you’re thinking about
buying the pullin when you get more
volatility that’s gonna get me more
interested in buying the pullin when you
get more volume that’s gonna get me more
interested in buying the pullin when you
get both that’s gonna get me even more
interested okay but volatility is
important yeah so besides that just kind
of seeing how there was support pretty
much from 94 through 95 so basically
every few cents that the stock would dip
it would then just jump right back up so
like that can also serve as kind of
confirmation for this breakout theory
and then for the traders on the desk
that were trading this we were all
speaking while this trade was going on
and we were all just kind of pointing
out different things that we saw on the
tape so being able to have multiple eyes
following this trade definitely made
this easier to actually stay in and
follow through to the upside because
there is so much communication yeah
that’s why I wanted to talk about this
trade correct me if I’m wrong I remember
you guys teeing this up this 94 level up
in the am meeting did I remember that
correctly vaguely think so yes but but
also just kind of our filters as well
we’re all picking this up because of our
wall so that we actually saw the follow
through and then we were definitely
discussing it before the 94 break during
the morning so yeah I’m almost certain
that you guys did we’ll check the tapes
but also I remember hearing you guys
call out the level before it actually
broke and then I remember actually Kyle
saying that he owed you a beer I think I
heard that right yeah he does owe me
beer or a lot a packet or a pack of gum
I don’t know what I was something yeah
he owes you something did he pay you
I
I’m waiting me actually a hole that’s a
separate video really so so I hear kike
I heard Kyle thank you for calling this
out and I think Kyle you made at that
too at that point this was if not your
best trade today live one of your better
trades is that right yeah yeah and so
look you guys all sit together and I get
so many notes from people about how it’s
lonely to trade as an independent a
retail trader and they wish they had
people around them to share ideas and
this is an example of that I just got
one today from somebody in North
Carolina who asked me to introduce him
to all the SME traders in the Charlotte
area so that he could trade with them
create a network with them maybe even
share space with them so if you’re from
the Charlotte area reach out and we’ll
connect you guys but there’s a lot
that’s the way most people trade and so
you have that as a huge advantage but
there’s something even more important
than the fact that you guys are sharing
information with each other in real time
which is you’re teeing up for each other
and getting ready to actually make this
trade you are going to you are more
likely to make this trade if you’re all
talking about how important that
ninety-four level is you get that in
your head it happens as opposed to
you’re just doing it yourself as opposed
to you know max you’re just sitting
there you’re not saying anything
you guys actually do a good job talking
to each other on the headsets I don’t
know why you need headsets since you’re
like five feet from each other again
another video but it’s better than you
guys just G chatting to each other okay
but that’s T it’s getting you ready to
push the buttons it’s not an accident
that preceding you having your best
trade to date you guys were talking
about it
it just makes it easier it’s like oh we
talked about that now it’s 90 401 we
talked about if it got above that price
that I would get long because it was a
good setup I remember you talking about
in the a.m. meeting but if you even if
you didn’t we just talked about it for
the last five minutes here it is let me
push the buttons and see what happens
and so that’s that’s super important and
I will just say that was really one of
the better moments I think that was in
the first I think that was that was
Friday yeah the first week that was one
of the better moments of that week
overall for all the training you guys
did that was one of the better moments
is the fact that you guys used each
other and you had success because you
did and you teed up good ideas and
there’s gonna be times when one Kyle max
gives you a bad bad idea and he’s gonna
say if beyond gets below 120 I’m gonna
short it and you get short below 120 it
takes down 50 cents and it goes straight
to 122 you’re like sob I promise I was
gonna swear today yeah and we’ve got
some of the younger interns in here so
I’m gonna work on that you know that was
such it but but that isn’t really the
way to think about it it you want more
information it’s your job to process the
information from people around you so
that it works for you but to blame
somebody else for giving you information
and then you making a decision to take
it and it not working out on the other
person makes no sense
sure job to filter the information but
you want more information and as you
when I used to sit next to Spencer for
many years as a trader I literally could
tell if the stock was gonna go up based
on the intonation and his voice how
excited he was about a particular level
I could just literally I could we could
have literally built a black box program
off of the sound of his voice if I could
actually define it and so you’ll learn
that from each other you’ll learn when
Mac says you know ads above 94
looking at as opposed to you guys it’s
above 94 you know and sometimes we’ll be
like guys it’s really above 94 maybe
that information you know to actually
short that but like you will be able to
he’s too excited maybe that’s a short so
you’ll learn to use that information but
yeah it was a really really good job
sharing the information teeing it up and
and pushing the buttons and that note
I’m sure you could have done some things
better but good example of the classic
bull pattern a good example using a key
level and the longer-term charts and it
working and good example of seeing that
that pole and the flag pattern and and
and how to trade that now it’s your turn
do you trade the classic bull flag
pattern if so what are your results let
us know by leaving a comment below right
now
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