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The Rising Flag (or Bullish Flag) pattern looks like a flag with a mast. It forms when rising prices experience a consolidation period, and the price moves within a narrow range defined by the parallel lines through points (2, 4) and (3, 5). After the consolidation, the previous trend resumes.
This type of formation happens when the price of a security is expected to move in a rising trend line, but some volatility along the way creates a consolidation period.
Once the price breaks out from the top pattern boundary, day traders and swing traders should trade with an UP trend. Consider buying the security or a call option at the upward breakout price/entry point. To identify an exit, compute the target price by adding the initial rise between points 1 and 2 to the breakout price.
The breakout price level for the Bullish Flag pattern is the last point touching the top line (point 4). When trading, wait for the confirmation move, which is when the price rises above the Breakout level.
To limit potential loss when price suddenly goes in the wrong direction, consider placing a stop order to sell at or below the breakout price.