Bull Flag and Bear Flag Chart Patterns Explained

bear flag meaning stocks

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Is bear flag bearish?

A bear flag is a bearish chart pattern that's formed by two declines separated by a brief consolidating retracement period. The flagpole forms on an almost vertical panic price drop as bulls get blindsided from the sellers, then a bounce that has parallel upper and lower trendlines, which form the flag.

77.77% of retail investor accounts lose money when trading CFDs with this provider. The downtrend continues, and more sell positions are opened, which increases the selling pressure. As a rule, a bear flag meaning stocks bear flag is formed along with high trading volumes. The flag, which represents a consolidation and slow pullback from the uptrend, should ideally have low or declining volume into its formation.

The Best Chart Pattern Scanners

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Who has a bear flag?

The California State Flag, also known unofficially as the “Bear Flag,” is the oldest unofficial State Symbol. Though it came into existence during the short-lived Bear Flag Revolt in the spring of 1846, it was not officially adopted as California's official State Flag until 1911.

You want to see a strong move upward in prior days to form the “pole” of the flag. Then you want a tight consolidation where the price begins to move downward or countertrend on lower volume. Lastly, when the volume returns, you’ll buy the break of the previous candle’s high. Lastly, be sure to analyze volume to determine the reliability of your bull flags. If volume expansion returns well on a stock, it should lead to higher prices.

Pennant pattern

Bearish flags are the opposite of bull flags and represent what investors believe to be a downward trend of the stock. The bear flag has a notable dip in the stock, followed by a consolidation and then a continuation of the downtrend. On the above weekly chart price action has corrected over 90% since the sell signal (not shown).

The pattern formed by inverting the bull flag stock pattern is called the bear flag stock pattern. Now, inside this trading range we’ve drawn, you’ll see the “current” day we are wanting to trade inside the blue oval. Within that range, a bull flag begins to form mid-day, right https://www.bigshotrading.info/how-the-stock-market-works/ at the middle of the trading range. Nonetheless, for a pennant pattern to be bullish, you want it to have similar characteristics to a bull flag with regard to volume. The only real difference is that the pattern will be creating higher lows and lower highs into the apex.

What is the bear flag pattern?

The pennant phase is identified by an initial large price movement indicating high volume transactions, followed by weaker price movement indicating low volume transactions. Identifying the bear flag pattern should be an easy job but if you have the right trading conditions the bearish flag can be a great trading pattern to start growing your account. The key thing about the bear flag chart pattern strategy is that it’s a strategy that works only in a bear market and it works beautifully. Pattern recognition is a cornerstone of technical analysis and one of the most useful tools for traders operating in financial markets. The bear flag pattern has long been a popular and reliable trading signal used by technical traders in the markets to identify the likely continuation of a downtrend. The flag has two parallel trendlines, which work as support and resistance levels.

  • This resumption should be accompanied by the presence of renewed volume (demand).
  • ThinkMarkets ensures high levels of client satisfaction with high client retention and conversion rates.
  • On the above 10-day log growth chart price action has been riding the ‘mean’ log growth line for a little over 1 year now.
  • Stop-loss is usually set at or just below the lower trendline of the flag.
  • The “flag pole,” or initial uptrend, should be strong in demand.

The best way to master flag patterns is to start looking for them on live markets. You can practise trading flags with zero risk with a City Index demo account, which comes with virtual funds to try out technical analysis on our full range of live markets. Bull flags and bear flags can be a trader’s friend in strongly trending markets, but they do not always perform as advertised. In some cases, the pattern can present a trap known as a “false breakout” when price breaches the boundary of the flag and quickly retraces.

As a result, analysts view strong volumes as a sign of a successful bull flag breakout. A stop-loss level could be defined by the risk-reward ratio. Again, the trader could use a higher ratio as the downtrend is strong.

bear flag meaning stocks

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