Bullish and Bearish Flag Patterns Stock Charts

Bear Flag Pattern

If you are new to charts, you will save a lot of money and gain experience by using demo accounts. This will help you get familiar with different charts and experiment with the rules.

  • We like trading bull flags on the 2 and 5-minute time frames as a way to scalp short-term price movements.
  • The pattern is considered a continuation pattern, with the breakout from the pattern typically occurring in the direction of the overall trend.
  • You can also apply indicators that will provide additional confirmation.
  • In the example below, both represented an equal distance of 500 pips.
  • The best thing about the bear flag pattern is that there’s a very easy way of knowing how low it will send the currency price.
  • You could interpret a flag pattern as a brief pause in the middle of a sustained trend.
  • If you are new to charts, you will save a lot of money and gain experience by using demo accounts.

Yes, the bear flag is considered one of the most popular price action patterns, along with double top, and head and shoulders. Still, it doesn’t mean that all of the signals it provides will be 100% accurate, especially when you trade cryptocurrencies. To limit potential losses in case the price defies the pattern’s rules, use risk management techniques.

Bear Flag and Bull Flag Patterns Explained

The most common method of trading a Bear Flag or Bull flag is to wait for a breakout in the direction of the initial move or underlying trend. Notice in this example how the continuation is the exact same length as the flag pole. The distance for the flag pole is measured from the swing low to the swing high of the flag pattern. The characteristics are easy to identify, making it a great option for beginners. But don’t be fooled, these continuation patterns are as profitable as they are simple. Our team at TSG prefers to take the conservative approach and wait for a break and close below the bearish flag before executing the trade. In this case, you can always use this breakout trading strategy and discover how the pros trade breakouts.

If there’s a pattern failure, take a step back and see if you are looking too closely and that maybe this is just part of a larger pattern. The volume increased with the second break of the pattern above our upper bear flag level and signaled that the bulls were back in control, leaving the bears behind. Commentary and opinions expressed are those of the author/speaker and not necessarily those of SpeedTrader.

How reliable are Bull Flags and Bear Flags?

The difference is that a bearish flag is the exact inverse of the illustration above. But before we go too far, let’s look at the components of a bullish or bearish flag pattern.

  • The starting points for the trend lines should connect the highest highs and the highest lows to represent the flag portion.
  • Investors who’d rather avoid risky trades will have limited opportunities to make a huge profit when using this chart pattern.
  • The bull flag pattern is a piece of price action that occurs on candlestick charts after a major upward move.
  • The flag pattern is used to identify the possible continuation of a previous trend from a point at which price has drifted against that same trend.
  • This means that in a bearish flag, the consolidation trends slightly higher, and in a bullish flag, the consolidation trends slightly lower.
  • Due to different market events, the price may reverse before your Take-Profit is triggered.

Viewed in isolation they don’t give us any indication of what the price is going to do and whether the trade setup is a high probability or any good to take. Maybe you should do what others aren’t doing and be on the opposite side of the equation and trade the way Smart Money Traders trade? Allows institutions to further open short positions and trick smaller funds and retail traders into thinking the market may have reached a turning point making and closing their positions.

How to Identify the Bear Flag Pattern

As many readers will know, entering a short position typically carries more risk than entering a long position as it will mean that, theoretically, your losses could be unlimited. For this reason, you should ensure that any short position is always protected by a strict stop-loss order. Whilst the above strategy may appear to be self-explanatory and relatively easy to follow, implementing Bear Flag Pattern it in real-time with real capital at risk is an entirely different animal. You would be well-advised to practice your trading skills on a demo account prior to putting any of your capital at risk. As you can see above, AMD experienced a sharp drop in the price of its stock. Once the drop concluded, the value of the stock began to consolidate and started trending slightly higher.

Bear Flag Pattern