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Bearish Flag Pattern: 5 Steps To Profit When Markets Fall

Bear Flag Pattern

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. To chart a bear flag pattern, traders should identify a sharp decline in price (the flagpole) and a period of consolidation with a downward-sloping trendline (the flag). Traders should also analyze volume to confirm the pattern’s reliability. A bear flag pattern is easily identified in the chart as an intensive price decline (flagpole) and a short upward consolidation (flag). The flag breakout downside indicates the continuation of the bearish trend; you can open short positions. A bearish flag is a technical analysis pattern that signals the continuation of a downtrend.

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Subsequently, the formation is commonly used to sell FX currency pairs. It signals the extension of a prevailing downtrend after a temporary pause in price action has been completed. Read on to learn more about the bear flag and how to integrate it into your trading strategy. There is no risk-reward ratio specific to the bear-flag pattern, or any other stock chart pattern for that matter. On Phemex, you can combine the bull and bear flag patterns with other indicators to help plan out your trades.

How to Identify a Bear Flag Continuation Pattern?

Trader’s need to be aware of price movements and other fundamental and technical moves that may occur throughout the trade journey. Volume patterns may often be used in conjunction with flag patterns, with the aim of further validating these formations and their assumed outcomes. It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career. Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training.

The strong move down is known as the ‘flagpole’ whilst the consolidation is referred to as the ‘flag’ itself. It’s essential to understand the difference between the bullish flag pattern and the bearish flag pattern. Although each is a technical analysis continuation pattern, trend direction is everything. A bear flag pattern is going to form when the stock is in a strong downturn.

Bearish Flag Chart Pattern: FAQ

We also offer real-time stock alerts for those that want to follow our options trades. You have the option to trade stocks instead of going the options trading route if you wish. The second entry is safe because the initial breakout Bear Flag Pattern has happened avoiding a false break out. Once the the flag pole ends the bulls gain confidence and begin buying; only to be faked out as the stock drops again. That being said, some bulls get blindsided by the bears; a bull-trap.

  • Together these charts illustrate the favourable volume patterns traders will be looking to identify into a bull flag, which assumes continued price gains to follow.
  • The image below shows a bear flag occurring on an actual candlestick chart.
  • This is typically marked by lower volume and tighter trading range.
  • If you’re not confident about applying bull and bear flag patterns to real-world trades just yet, Phemex offers a fantastic paper trading platform that you can use to hone your skills.
  • People come here to learn, hang out, practice, trade stocks, and more.
  • Profit targets should be set by taking the length of the flagpole and tracing it downward from the breakout.

The two patterns give the same signal – bearish continuation, and they’re so similar that the untrained eye might easily see little to no difference between them. So, there you go – if you understand bearish flags, you also understand bullish flags. There are no major differences between the two, apart from the fact that bull flags lead to a 1% greater price moves on average when compared to their bearish counterparts. First of all, while bear flags occur frequently and on many timeframes, the shorter the time frame, the less reliable the signal.