The Bear Flag Trading Strategy Guide

Bear Flag Pattern

Now that you’re familiar with the bearish flag formation, let’s walk through an easy step-by-step guide. It will frame an easy trading strategy for you to skim the markets. The bear flag is an essential chart pattern – simple, frequent, and easy to spot. It boasts a high reliability rating, offers simple entry and exit points, and usually leads to significant price action.

According to published research, the has a low success rate of 45%. This means you are flipping a coin when trading this pattern, as the odds are not in your favor. The high-tight bear flag is the only flag pattern you should trade. A high-volume market in a downtrend means the bears are strong enough to pull the price down.

Can a bear flag be bullish?

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. Traders of bull and bear flag patterns might hope to see the breakout accompanied by a high-volume bar.

Bear Flag Patterns are versatile and may be employed in any market, including cryptocurrencies. When trading Bitcoin or altcoins, the pattern can be identified on various time frames, including H15, H30, H1, H4, and D1. Trading the bearish flag follows the same ideas as trading other candlestick patterns. Once we identify the flag, we enter a wait-and-see mode to determine whether the supporting trend line will be broken. The bearish flag pattern has some similarities with the Rectangle Chart Pattern.

Trading bull flags with volume confirmations

Now, when the price moves in the opposite direction – meaning the flag pole is pointing upwards, we have the bull flag chart pattern, which is the opposite of the bear flag. Both of these variations represent continuation patterns – signals that the thus-prevailing trend will continue. The bear flag pattern is considered a continuation pattern, but the evidence shows it is both a continuation and a reversal pattern. The bear flag has an almost 50% chance of continuing or reversing the trend. Considering the average change after the breakout is only 9%, it is not worth trading this pattern.

  • The bullish flag pattern is characterized by a brief period of consolidation or sideways movement, represented by a rectangular shape (the flag), following a strong upward price movement.
  • Do not trade bear flags, they have a 55% failure rate, and even if they succeed, they only average a 9% price increase.
  • Our trade rooms are a great place to get live group mentoring and training.
  • A high-volume bar to accompany the breakout, suggests a strong force in the move which shifts the price out of consolidation and into a renewed trend.
  • As with all forex strategies and indicators, bear flag formations have a unique collection of pros and cons.
  • During the pause or the narrow consolidation, people wait to get a higher price so they can sell.

A strong, reliable continuation pattern, the bear flag is suitable for a variety of trading approaches. Apart from the most straightforward approach of simply shorting a stock, options offer another way to leverage the chart pattern. In fact, several options trading strategies for those just started out, such as long puts, are a perfect fit for the trading signals that bear flags represent. The bear flag pattern gives us a simple and reliable piece of information – the current downtrend is going to continue, and prices will continue to drop.

Learning to Trade a Bear Flag Pattern

The stop loss is approximately 20 pips above the entry and is contained within the channel territory. As is the case with the bull flag, a clean transfer to the interior of the flag renders the bear flag pattern invalid. Once you entry a flag pattern, the targets can be derived from many indicators.

  • There are a number of different trading strategies that you can use when trading bear flag pattern.
  • Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research.
  • The bearish candlesticks that form the flagpole are formed by panic selling.
  • Follow the steps below to spot bear flags on your forex price charts.
  • Get virtual funds, test your strategy and prove your skills in real market conditions.

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not responsible for the products, services and policies of any third party. – Just like any other indicator, the bear flag can be unreliable. This sell-off should be accompanied by high volume, as this indicates that there is significant selling pressure in the market.

Once the stock peaks out, the bears regain some confidence as they add to their short positions only to get trapped again when the breakout forms causing more short covering. A flag pattern is a trend continuation pattern, appropriately named after it’s visual similarity to a flag on a flagpole. A “flag” is composed of an explosive strong price move that forms the flagpole, followed by an orderly and diagonally symmetrical pullback, which forms the flag. When the trendline resistance on the flag breaks, it triggers the next leg of the trend move and the stock proceeds ahead. What separates the flag from a typical breakout or breakdown is the pole formation representing almost a vertical and parabolic initial price move.

Bear Flag Pattern

In other words, the distance between the flag pole and the market can be utilized to determine the extent to which the price pattern may drop. On the other hand, Conservative traders can rely on a more narrow profit target equal to the height of the flag channel. 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 as stop-loss orders to protect your capital. After we identify the market trend and the characteristics of a good bearish flag pattern we need to wait for confirmation that the trend is about to resume. Now, we need to determine an entry technique for our bear flag pattern strategy.

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