Bear Flag Pattern: Intro and Strategy

Trading in the stock market is a trendy one in the current pandemic situation. More and more youngsters are beginning to invest in the stock market. Identifying the trend of the price movement from the chart is a key factor for trading. Experts can do it easily by studying the chart via technical analysis where beginners can gain the knowledge by their experience. The Technical analysis of the specified stock is more important to trade or invest at the right time. Chart statistics provide past price movement of the particular stock and also forecast the future price movement. But the chart statistics will not provide end prediction, but it will guide the investors to assume what the trend may be. Investment at the right time is key to success in the stock market where the technical analysis via chart statistics shows the way to pick the right time.

Flag Pattern – Candlestick Chart

There are different charts available to make the technical analysis easy such as “line, Bar, Candlestick and Renko chart analysis”. Flag pattern is one of the continuation signals existing in candlestick chart analysis. Generally the cause of flag pattern name is, the signal shown in the chart looks like a flag or a flag pole. This flag pattern may be formed when the stock price consolidates in a narrow range after the sharp upward or downward price movement. This is the zone where the traders may book profit. Depending on the market trend it may be either a bull (upward trend) or bear (down ward) flag pattern formed.

Bear flag pattern

Bear flag pattern is the signal that shows the extension of downtrend of the price movement after a slow consolidation phase. The bear flag pattern is operative when the supporting price gets broken, as the price movement continues downtrend. At this time, selling pressure will increase since the price moves down and indicates the downward movement will continue. It is the one commonly used by breakout and swing traders.

Components of Bear Flag

The flag pole: The sharp decline of price action. It is a primary trend which is the initiation of the bear flag pattern.

Flag: Sharp movement of price between two horizontal trend lines termed as resistance and support with higher volumes in an uptrend. Retracement should be less than 38 percent.

A breakout: An activation of the bear flag pattern occurs when a price breaks the supporting line.

Trading in a bear flag pattern

Investors or traders should watch the market sentiments once the flagpole is formed whether the price action is entering into the consolidation region or not. Once the price entered into the consolidation region make sure that no reversal happens in the price movement and wait until the price breaks the consolidation. Once the breakdown appears then can book the profit according to the trader’s strategy.

Reliability

The bear flag is a highly reliable pattern when all its features are formed. It can be applied to all financial markets but is a bit difficult to the neophyte traders.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes