How to Spot Bull Flags that Return Huge Profits

Spotting bull flags is a skill that takes time to develop. By knowing what to look for though and using live chart pattern case studies, finding and ultimately buying into these bull flag breakouts for big profits can be accomplished. Today's 7% return in Omnivision Technologies (OVTI) is a great model example of what to look for.

Omnivision setup a bull very nice bull flag over the last three days, breaking out today assisted by the market. It is only 12:30 PM as I write this post and volume is easily going to surpass its average and confirm itself as a strong accumulation day. The stock is up over 7% at the moment.

Before getting in the stock chart, there are several keys to spotting a solid bull flag pattern:

  1. Look for stocks that recently hit fresh 52 week highs and are hovering close to their highs (0 - 15% off).
  2. Look for stocks that are leaders in their groups. This means strong fundamentals and a good growth story.
  3. Should be trading above the 10, 50, and 200 day moving averages.
  4. The stock should be under accumulation and have a favorable count on accumulation days versus distribution days.

Now take a look at the chart below which will serve as our model example today. The numbers associate with the points below the chart. These points break down the lead up to today's move.

1. After a three month pull back, OVTI posted fantastic earnings to gap and run on record volume. The stock closed above its key resistance and immediately established a new uptrend.

2. OVTI runs to fresh 52 week highs. After a key intraday reversal the stock closed even and upon a closer look it can be seen that the stock experienced higher price volatility for multiple days but closed nearly flat on all sessions. This is a sign of indecision by investors and lead into the subsequent pull back.

3. OVTI finds support at $29 which is a key support trendline for the stock. If OVTI would have slipped under $28.60 (start of the gap range from 2/25) further sell pressure could have easily caused the stock to sell down into the mid $20s.  However, this was not the case, and OVTI consolidated in price for several days forming a bottom.

4. A key accumulation day moves OVTI back above the 10 day moving average (not shown) and kicks off a fresh uptrend. A two day pull back then occurs on LOWER volume and with the highs of each day being lower than the previous. This sets up the bull flag breakout (5).

5. Today the market gaps to the upside and OVTI gaps out of the gate then runs. I used $32.20 as my buypoint which was just above the high of 3/21 (point 4). Bull flag complete.

For me personally I have been watching OVTI since the stock made its run to fresh 52 week highs in early March. By watching volume and key support levels I allowed the stock to naturally find its feet and start pressing higher. Now with solid unrealized gains in hand, I have several options:

  • Raise my stop loss to the low of today $31.92 or even my buypoint of $32.20 and see what the stock does. This ensures that I do not take a bad loss on the position and opens me up to further upside potential.
  • Raise my stop and sell up to half my positions to lock in the quick profits.
  • Sell out completely, walk away, and move onto the next position.

How the stock is handled moving forward depends on the profit vs loss ratio of the investor. Regardless though, having a potential big winner is a great situation to be in. Key word here is potential, as it is critical to avoid premature celebration.

Stay frosty out there 8-) . More stock chart examples and lessons below.

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  1. [...] close watchlist should have been coming in handy this week. On StockTradingToGo today I posted on How to Spot Bull Flags for Big Profits and used OVTI as an example. The stock was one from my watchlist which was good for over 6% today [...]