Bull flags, like most continuation shapes, represent a bit more than a shorter lull in a bigger move. Moreover, they occur as assets/stocks hardly move higher in a straight line for a long period because these moves are broken up by shorter periods. Jay and Julie Hawk are the married co-founders of TheFXperts, a provider of financial writing services particularly renowned for its coverage of forex-related topics. While their prolific writing career includes seven books and contributions to numerous financial websites and newswires, much of their recent work was published at Benzinga. But then the flag portion emerges as a slight reprieve, indicating the bulls have managed to halt the descent for now – an uneasy truce emerges within this period of consolidation.

How Can Webinars and Other Information Sources Help in Trading Flag Patterns?

This strategy focuses on entering a trade during the breakout phase of a bear flag. Wait for the price to break below the flag’s lower boundary, which signals a continuation of the initial downtrend. This breakout is often accompanied by increased trading volume, which confirms the bearish momentum.

However, within an overarching downtrend, the bear flag stock pattern signals that this balance is temporary. Odds are the bears will regain the upper hand once more after this pause to refresh. Within the context of an ongoing downtrend, a bear flag stock indicates trader indecision and consolidation, rather than a reversal.

How to Trade a Bull Flag

A bear flag pattern that occurs during a strong downtrend is more reliable than one that occurs during a period of consolidation or uncertainty. The overall market conditions and the presence of other technical indicators should also be considered to confirm the trend’s direction. To trade a bull flag, identify the initial upward move and the subsequent consolidation phase.

• Another example is of a bear flag pattern failing is when it breaks the flag to the downside, only to reverse the trend on the next candlestick.
• A breakout with substantial volume is akin to a confident affirmation from the market, bolstering the signal’s credibility.
• The length of a flagpole may vary; however, it is supposed to symbolize a strong move in one direction.
• Besides adhering to the conventional bear flag pattern, traders can use a few trend variations to help them seek out new trades.
• The distance between the top and bottom of the flag pole gives a target measurement for the breakout or breakdown.

The high volume into the move lower (flagpole) and low volume into the move higher, are suggestions that the overall momentum for the market being traded is negative. This furthers the assumption that the preceding downtrend is likely to continue. – Once you have identified these two parts of the pattern, you can then look for a breakout to the downside from the consolidation phase.

What happens after a bear flag pattern?

The second candle is bullish and long, which could confirm a trend continuation. The bearish flag pennant forms with a sharp price decline as well followed by a triangle-shaped consolidation pattern. The pennant shape comes as the range of the price oscillations narrows over time within the triangle as price action converging in a triangle, just before the eventual breakout downward.

A bear flag pattern is characterized by an initial sharp decline and then a period of consolidation. With most bear flag patterns, the volume increases when the pole is being formed, then remains at its new level. Volume typically does not decline during the consolidation period as downward trends are often a vicious cycle driven by investor fear over falling prices. As such, the volume is upwards as the remaining investors feel compelled to take action. When reviewing price charts, traders are always on the lookout for chart patterns that may indicate future market moves.

There are a number of different chart patterns that traders have to watch out for to optimize their trading strategies. A bull flag is a bullish chart pattern that forms within an uptrend, while a bear flag is a bearish pattern that forms within a downtrend. Both signal consolidation for a market that general result in a continuation of the underlying trend.

How To Trade Bearish Flag Pattern

Traders must recognize the difference between continuation and reversal patterns. Flags suggest trend continuation, while formations like double tops or bottoms indicate reversals. Short-selling upon the breakout below the flag provides a favored strategy. The flag pattern becomes increasingly apparent as that upwards channel develops over the latter half of January. Keep in mind that the flag should not exceed a  50% retracement of the preceding flagpole move.

On Phemex, you can combine the bull and bear flag patterns with other indicators to help plan out your trades. So, a bull flag pattern is characterized by an initial sharp rally and then by a period of consolidation. With most bull flag patterns, the volume increases when the pole is being formed, then drops during the period of consolidation. Though the following breakout does not always feature a high surge in volume, an increase in volume can show that there has been an influx of new buyers. Both also have a concluding breakout in the same direction as the initial flagpole move that suggests take-profit points that are measured to similar extents. Keep in mind that if a bear flag is noted on a chart, and the overall downtrend resumes, the expected price decline once the flag breakout occurs could be very quick.

Furthermore, the flag pole was approximately 260 pips while the continuation only resulted in a 230 pip rally. Using the distance we calculated above for the flag pole, we now have a measured objective for a possible target. At this point the market has finished consolidating and is now trending in the original direction.

• Even when the formation of a flag pattern is obvious, there is no guarantee that the price will move in the expected direction.
• It involves projecting the distance of the flag pole from the breakout point and adding it to the breakout point to determine the profit target.
• In the image below, the 10 EMA, 30 EMA, and 50 EMA have been added to the chart.
• This will usually have a slight downward angle but can also move horizontally.

Variations of the Bear Flag Pattern

One such pattern is the bull flag, which signals a potential continuation of an upward trend. The bull flag pattern forms when prices consolidate in a downward sloping channel after a strong advance. When trading a bull flag pattern, traders typically look to enter into a long position when the price breaks out of the consolidation period and resumes the uptrend.

The bear flag stocks we’ll be discussing is merely a chart formation – no actual ursine cults are involved. Use a trailing stop loss under support levels and the lower flag trendline which will allow you to lock in gains as the trend moves favorably. Set a profit target based on the height of the previous “flagpole”.

During the consolidation, key bear flag vs bull flag support level and demand zones established in the uptrend should hold. Additionally, they may place a stop order above the flag’s upper trend line to determine the stop-loss order. Volume patterns may often be used in conjunction with flag patterns, with the aim of further validating these formations and their assumed outcomes. In a downtrend a bear flag will highlight a slow consolidation higher after an aggressive move lower. This suggests more selling enthusiasm on the move down than on the move up and alludes to the momentum as remaining negative for the security in question.