If you like trading Bull and Bear Flags as I do, you’ll probably want to look at Baidu (BIDU) right now.
First, we have a textbook bear flag pattern to study and today we have a potential bull flag trade in motion.
We have a special page for Bull and Bear Flags in our Educational section – check it out if you’re new.
Baidu (BIDU) shares plunged from the September high to form a “flag” pattern in October.
A breakdown in November set in motion the “Pole” or Measured Move (target and trade) outcome that took price straight into the pattern target at $ 160.00 per share.
A rally and reversal took place and the early January surge set in motion a “Flag” which we’re seeing now.
For reference, a Flag has three components:
The “Pole” which is the initial swing (impulse)
The “Flag” which I show with blue trendlines – like an actual flag, and
The “Measured Move” which sets up the Trade (entry) and eventual target (exit)
We can’t do much with the Pole or the actual Flag, but we can trade the breakout as price travels the “Measured Move” (which is a similar swing to what we saw from the Pole).
You can also “Copy and Paste” the Pole to the lower edge of the Flag to get your price projection target.
In this case – for the Bull Flag – it’s back to the $ 190.00 per share level.
In the event the pattern fails – any pattern can fail – place the stop either in the middle of the Flag trendlines (conservative) or under the lower Flag depending on your risk tolerance.
From there, let it run! If the pattern is successful, price will travel higher toward the target.
If not, you can take profits along the way or trigger your stop loss in the event of a “trap” and pattern fail.
Even if you’re not trading this particular stock, it will be interesting to watch what happens next!
Follow along with members of the Afraid to Trade Premium Membership for real-time updates and additional trade planning.
Corey Rosenbloom, CMT
Afraid to Trade.com
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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).”
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