The Bear Flag Trading Strategy Guide

Bear Flag Pattern

A bear flag pattern is constructed by a descending trend or bearish trend, followed by a pause in the trend line or consolidation zone. The strong down move is also called the flagpole while the consolidation is also known as the flag. The bear flag chart pattern is conducive to a sell-side trading strategy. This is the point at which, after a strong move in price, the market consolidates for a period of time. The length of time is irrelevant, however do note that longer consolidation periods tend to lead to more aggressive breakouts.

  • I think everyone is still very bearish, so it’s time for a massive, mind-blowing pump!
  • Please also don’t forget to check out our previous strategy tutorial on trading channel pattern strategy.
  • 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.
  • Draw an upper trend line to define the upper bounds of the flag.
  • Your Take-Profit level should be equal to the difference you counted at the second step.
  • We can see here on the weekly chart that GRT has broken up from its descending channel and price action is currently very close to the descending channel’s breakout target.
  • A bear flag pattern has a clear meaning to a savvy technical trader.

During this consolidation, you may notice that the price fluctuates up and down while trending slightly higher. The higher end of this consolidation will act as a resistance line and the lower end will act as support. You can see these two lines outlined in the chart for Advanced Micro Devices above. In order to confirm the bearish flag pattern, the price of the security will need to fall through this support level and continue the overall downtrend.

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If the price is close to or touching the top DNC line, then you likely have a break out forming, not a bear flag. Identify the flag pole, which is the preceding sharp upturn that is typically complemented by increased volume as traders respond to the price movement. Bull flag patterns are a great setup for new traders to learn because they are easy to spot and trade once you understand the mechanics behind them. We’ll get into how to trade these price action patterns in a later lesson.

Sell after the bear flag; if the bull flag appears on the chart, it signals a buying position. Wait for the price to break below the lower boundary of the flag. The profit target is a potential value to take profit after the next decline in price. You identify the profit target by first measuring the distance of the initial decline. This value can then be subtracted from the upper line of the consolidation flag. After a strong downtrend, the price action consolidates within the two parallel trend lines in the opposite direction of the downtrend. Once the supporting trend line gets broken, the Bear Flag Pattern is activated as the price action continues trading lower.

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A chart formation is a recognizable pattern that occurs on a financial chart. How the pattern performed in the past provides insights when the pattern appears again. The high volume into the move lower 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. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.

Bear Flag Pattern