However, in a bull flag, the trend of the flag is upward, while in a bear flag, the trend is downwards. To illustrate this, traders spot a bullish pattern after an intense rally and then watch for the price to trade sideways for a bit. In contrast, a bearish pattern is spotted when price action is in a descending trend line, followed by consolidation.
Like the majority of continuation forms, Bull flags signify anything more than a brief pause inside a larger move. Additionally, they arise because assets/stocks seldom move in a straight line for an extended length of time since shorter intervals punctuate these moves. When the price of a stock or asset swings in the opposite direction of the long-term trend, these patterns occur. Bull flags, like most continuation shapes, represent a bit more than a shorter lull in a bigger move. Moreover, they occur as assets/stocks hardly move higher in a straight line for a long period because these moves are broken up by shorter periods.
Bull Flag and Bear Flag Pattern Traits
In summation, the bull and bear flag patterns are great tools for traders when day trading or swing trading. 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). bull flag vs bear flag Traders should also analyze volume to confirm the pattern’s reliability. A bull flag is a bullish continuation pattern that appears during an uptrend. Traders use technical analysis tools to identify downtrends, such as moving averages, trendlines, and chart patterns.
In a bull flag, any short sellers who enter the market during the consolidation usually get caught in a bear trap when the price breaks above the flag. And as they exit the market to cover their short positions, they inadvertently drive the prices higher. The breakout from the bull flag is often accompanied by an increase in the volume, although it may not necessarily be as high as the volume on the flag pole. Bull flags and bear flags can be a trader’s friend in strongly trending markets, but they do not always perform as advertised.
How Do You Chart a Bear Flag?
Enhanced or above-average volume accompanying the downtrend (flagpole) indicates increased sell-side interest for the underlying asset. Generally, traders place their orders at the moment when the price movement deviates from the flag. Typically, the length of the flagpole is used to compute the profit objective, but a more cautious strategy is to utilize the flagpole’s height. Recognize the flagpole, which is the preceding sharp upward movement that is often followed by an increase in volume as traders respond to the price movement.
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Investors: DON’T Get Fooled by This Suckers Rally.
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HowToTrade.com helps traders of all levels learn how to trade the financial markets. Learn the exact chart patterns you need to know to find opportunities in the markets. It’s worth noting that candlestick patterns are not always as precise as expected.
The Flag Pole/ The Preceding Trend
The point on the chart where you realize that this setup is no longer working out and it’s time to go. Traders use the flag to identify potential entry and exit points in a trade. The shape and duration of the flag can provide insight into the potential price movements that may occur after the pattern is completed. In a bull flag formation, traders will hope to see high or increasing volume into the flagpole (trend which precedes the flag). The increasing or higher than usual volume accompanying the uptrend (flagpole), suggests an increased buy side enthusiasm for the security in question. In a bear flag formation, traders will hope to see high or increasing volume into the flagpole (trend which precedes the flag).
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must also be aware of, and prepared to comply with, the margin rules applicable to day trading. You are aware of when the pattern fails, which allows you to exit the trade without incurring excessive losses. Surprise, surprise, ether was just $12 shy of reaching the exact price target on March 18, 2018. Guess what, bitcoin came just $10 shy of price target on Feb. 24, 2017. When it comes to making big money in trading, the trend is your friend.
