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. Traders of a bull flag might wait for the price to break above the resistance of the consolidation to find long entry into the market. The Relative Strength Index (RSI) is commonly used with bull and bear flags to gauge how overbought or oversold a crypto asset is.

Unlike the bull flag chart pattern, the volume doesn’t always drop during the consolidation phase in the bear flag. The logic behind this is that the drop in price, as witnessed in the bull flag, is usually driven by traders’ fear and anxiety over falling prices. And the more prices fall, the more the urgency for them to take action. However, the volume should decrease as the flag chart pattern forms and increase when the price breaks below the support level.

What Are the Key Differences Between Bull Flag and Bear Flag Patterns?

Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. Day trading is subject to significant risks and is not suitable

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Once you know how to spot a bull flag in a chart, you can plot entry and exit points. Identifying which type of bull flag formation is developing will help you better navigate the price action. Much of the sequence is dependent on several factors, including volume and the trader’s reactions to certain movements.

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Continuation chart patterns occur in a trending market and typically indicate a momentary period of price consolidation before the market continues trending in the previously observed trend. This guide focuses on one such chart pattern – the flag chart pattern. Traders can profit from identifying bearish flag patterns by going short on bearish trends.

The high volume confirms the breakout and suggests a greater validity and sustainability to the move higher. Bull and bear flags are popular price patterns recognised in technical analysis, which traders often use to identify trend continuations. Just like with any other chart pattern, the main objective of a bull flag is to allow traders the opportunity to profit from the market’s momentum. In this way, entry and exit points can be determined by studying the trajectory of the pattern’s trend. No pattern will always provide rewards, but they do substantially lower the risk of trading.

A bearish flag formation

The bull flag pattern derives its name from the shape formed when traders chart out the trend lines. Two parallel upper and lower trends are plotted on the chart after the initial pullback and consolidating sideways price action. The first rally, represented by a steep vertical climb, forms the flag’s pole, while the flag is formed around the consolidation trend that can either be horizontal or a downward slope. Another variant of this pattern is referred to as a bullish pennant, where the consolidation takes the form of a symmetrical triangle. Cryptocurrency traders use technical analysis as a guide to managing their trades. Certain price movements take on distinctive patterns which can help predict trends.

You can check this video by our trading analysts on how to identify and trade the bear flag pattern with real-time examples. You want to make sure your stops are accounted for, and your stop placement is correct. Usually, we want to place a stop above bull flag vs bear flag a high on a short so that we can protect against a change in structure. Meaning in the example above with our yellow line (original entry), it is a lot easier for us to place the stop above 4675 because that is the prior top and risk about 8 points.

Is the bear flag pattern bullish or bearish?

Advanced techniques, such as combining bear flag patterns with other technical analysis tools, can increase the reliability of trades. Variations of the bear flag pattern, such as bearish pennants and descending channels, can also provide additional trading opportunities. The breakout in a flag chart pattern occurs when the price rises above the resistance or breaks below the support level. The breakout usually plays a key role in determining the possible entries and exits. For a bull flag, the entry is usually just above the resistance level and below the support for a bear flag pattern.

• Traders can profit from identifying bearish flag patterns by going short on bearish trends.
• The price’s breaking point below the flag’s lower trendline is known as the breakout point for a bear flag.
• A high-volume breakout is a suggestion that the direction in which the breakout occurred, is more likely to be sustained.
• In contrast, a bear flag is created by a downward trend followed by a flag-shaped consolidation.
• While a bull flag validates that the preceding uptrend will continue, the bear flag ensures that the preceding downtrend is likely to occur.

Understanding the characteristics of the bear flag pattern, such as its continuation pattern, downtrend, flagpole, and flag, is crucial for successful trading. A bear flag chart is a pattern that appears when there is a significant price decline in an asset, followed by a period of consolidation, which can result in a continuation of the downtrend. Bull and bear flag formations are price patterns which occur frequently across varying time frames in financial markets. These patterns are considered continuation patterns in technical analysis terms, as they have a habit of occurring before the trend which preceded their formation is continued. In this article, we look at how to identify and trade these patterns by looking for entries and exits through breakouts, proportionate targets, failure levels and volume confirmations. In this flag pattern, trading results in a pullback from the top of the flag pole.

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This is quite bearish since buyers are unable to bring the price back to its previous level. On the TabTrader app, you can find RSI, moving averages (MA), Bollinger Bands and many more free technical analysis tools that will help you step up your trading. To learn more about how to read and use all the popular technical indicators, read our guide at TabTrader Academy. And if you are interested in knowing which technical indicators are most frequently used by TabTrader users, check out this article on our blog. Unlock our free video lessons and you will learn the exact chart patterns you need to know to find opportunities in the markets.

Day traders may make their entry just several candles after for shorter-term trades, though this comes at a much higher risk of entering on the basis of a false signal. It’s critical to understand that just because flags are continuation patterns, that doesn’t mean you should enter a trade immediately after you identify one. It’s important to understand the psychology behind this type of flag pattern trading in order to take advantage of its opportunities. Basically, the price refuses to drop substantially after a steep hike. This indicates that bulls are still sweeping in on the action and taking shares.