Bear Flag Chart Pattern Strategy What Is It? Backtest And Example

All you need to do is identify the trend , draw the flag, and place your profit target and stop-loss orders. After doing so, trade execution and management become a breeze. The bear flag is a signal of market consolidation that https://www.bigshotrading.info/ occurs within a downtrend. Visually, it appears as a sharp bearish price break, followed by a period of horizontal or “sideways” price action. As you can see in the USD/CAD chart below, both the flag pole and flag are apparent.

This is one of the first patterns we learn and is considered the most reliable. Today, we’ll look at the pattern then do a post mortem on when a bear flag is wrongly identified and what happens when this failed bear flag pattern occurs. A failed bear flag turns into a bullish pattern instead of a bearish one. When learning about flags, a bear flag is always a bearish continuation pattern. As a result, when a bear flag fails, you buy the move up instead of selling into a downturn. One of the best things about the bear flag chart pattern is that it is easy to trade.

How to Trade The Bull Flag Pattern

After the sell-off, the price will enter into a period of consolidation. Bear Flag Pattern This is typically marked by lowervolumeand tighter trading range.

For now, just focus on being able to identify these patterns – they occur all the time and can be a powerful asset in your trading toolbox. But before we go too far, let’s look at the components of a bullish or bearish flag pattern. The pole is caused by a significant drop in the asset price. As the market was trending down beforehand, this spike often forms with more bad news about the asset.

What does a Bull Flag Pattern look like?

This retracement should never be more than half of the initial price decline. The flag pattern typically completes in a second sharp move in the same direction as the flagpole and to roughly the same extent as the height of the flagpole. As mentioned earlier, the bear flag is a bearish continuation pattern. The first step in identifying the bear flag is to look for a downtrend. Next, the rebound should take place within an ascending channel, while we monitor the degree of the correction. As a general rule, you should set your stop-loss order at the top of the flag’s resistance level.

Remember to use a combination of different technical indicators and market analysis techniques to confirm your trade signals before entering any positions. Also, always use risk management tools such asstop-lossorders to protect your capital. Most traders usually set it at the resistance level of the flag — its upper border. Let’s take a look at an example of how you might trade a bear flag pattern.

How Do Bull Flag Patterns Work?

The flag, which represents a consolidation and slow pullback from the uptrend, should ideally have low or declining volume into its formation. This shows less buying enthusiasm into the counter trend move. 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. A trading target from the breakout is often derived by measuring the height of the preceding trend and projecting a proportionate distance from the breakout level. In an uptrend a bull flag will highlight a slow consolidation lower after an aggressive move higher.

At the same time, we have to keep an eye on the volume — it needs to be high — and the RSI, which should be below 30. A bull flag is a bullish chart pattern formed by two rallies separated by a brief consolidating retracement period. The flagpole forms on an almost vertical price spike as sellers get blindsided… However, like all pattern formations, bearish flags are not immune to failure. While bear flags can be highly reliable technical patterns, in a financial world that is abundant with price trend reversals, no continuation pattern is completely guaranteed. To identify the bearish flag pattern, you should begin with locating the flag pole of the pattern.

Crypto Bear Flag Pattern

Bear flags can be stronger when the swing low that begins the pattern is also an all-time low due to the possible lack of underlying support. The initial sell-off comes to an end through some profit-taking and forms a tight range making slightly higher lows and higher highs.