How to Trade Bull Flag and Bear Flag Pattern

This means that we set bull flag profit target 70 points from the point of a bullish pennant of the upper border of the consolidation. It’s crucial to be careful when identifying the bullish flag in the chart and when you trade the bull flag — several important factors must be present to form this pattern. However, this is the riskiest method, as a breakout may turn into a fakeout.

• An understanding of pattern psychology may help traders grasp the concept in a straightforward way.
• As a rule, a bear flag is formed along with high trading volumes.
• The trading strategy based on the Fibonacci levels suggests entering short positions on the price corrections.
• Or, like our AMC example, you might see a clean setup on the 30-minute chart.
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Finally, watch for a breakout and a continuation of the bullish trend, completing the pattern. In general, flag patterns are considered one of the most reliable continuation bull flag vs bear flag patterns that traders use in their technical analysis. This is because they provide the ideal setup for entering a chart trend that is ready to continue.

Bearish Flag Chart Pattern Strategy – Quick Profits In 5 Simple Steps

Our mission is to help you improve your chart analysis and trading skills, and we’ve developed a range of indicators to make trading more enjoyable, stress-free, and (hopefully profitable). Remember, we need the right context and the right price structure needs to line up for a tradable bearish flag. The breakout of the flag signals that the downtrend is ready to resume. As you can see in the figure below, after the market makes a strong down move, it enters into consolidation – a very narrow range – to adjust to the new lower prices. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey.

A “flag” is composed of an explosive strong price move that forms the flagpole, followed by an orderly and diagonally symmetrical pullback, which forms the flag. When the trendline resistance on the flag breaks, it triggers the next leg of the trend move and the stock proceeds ahead. What separates the flag from a typical breakout or breakdown is the pole formation representing almost a vertical and parabolic initial price move. While bull flag vs bear flag patterns aren’t present in every trend, they provide valuable opportunities for traders when they do appear. Every trader has their own unique approach to executing trades, resulting in varying methods for trading the bull flag vs and bear flag patterns.

A Guide to the Cup and Handle Pattern in Technical Analysis

Following the breakout, traders begin to look for possible entry points into the trend. There are also different ways this is done; one of the common strategies is to wait till the close of the candlestick that breaks the consolidation. The optimal place to buy a bull flag breakout is once the trend begins to shift once again in the desired direction. In this 30-minute chart example, you can see that the first candle to make a new high inside the bull flag becomes the breakout candle.

He started trading forex five years ago, and not long after that, he picked up interest in the crypto and blockchain systems. He has been a writer since 2019, and his experience in the Fintech industry has inspired most of his articles. When Temitope is not writing, he takes his time to learn new things and also loves to visit new places. Testimonials on this website may not be representative of the experience of other customers. No testimonial should be

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How to identify the bull flag chart pattern

It is important to confirm the pattern with other technical indicators such as RSI or moving averages to avoid false signals. It can be seen that after testing the broken-out support level, the bulls failed to cross the 50-period SMA line upwards. In addition, volumes decrease during the period of asset consolidation. Consequently, the market is completely under the control of the bears, and the EUR USD trading pair should continue falling. In this case, it is necessary to wait for the price to break out the flag and open a short position.

Bull flags form after a price spike that peaks out and slowly forms a short-term reversion downtrend. The starting points for the trend lines should connect the highest highs (upper trend line) and the highest lows (lower trend line) to represent the flag portion. While the lines are sloping down, they should remain relatively parallel to each other. Eventually the price should spike up through the upper trend line triggering shorts to cover and buyers to come off the fence. When the price exceeds the highest high, the bull flag is formed as buyers rush in making new highs and the next leg of the up trend resumes. Identifying the bear flag pattern in real-time is a straightforward process.