Chapter 12: Double Top Bear Flags and Double Bottom Bull Flags Trading Price Action Trading Ranges: Technical Analysis of Price Charts Bar by Bar for the Serious Trader Book

Posted by in Forex Trading on 5 Oktobra, 2020 Comments off

bull flag vs bear flag

The target for the bull flag is the pole height percentage rise added to the breakout point. Upper and lower trendlines are plotted to reflect the parallel diagonal nature. The breakout forms when the upper resistance trend line breaks again as prices surge back towards the high of the formation and explodes through to trigger another breakout and uptrend move.

In a bearish flag pattern, volume doesn’t always decline during consolidation as it does in bullish patterns. Traders of bull and bear flag patterns might hope to see the breakout accompanied by a high-volume bar. A high-volume bar to accompany the breakout, suggests a strong force in the move which shifts the price out of consolidation and into a renewed trend. A high-volume breakout is a suggestion that the direction in which the breakout occurred, is more likely to be sustained.

How reliable are bull flags?

To trade a bear flag pattern, traders usually place an order after the price breaks a support level. Furthermore, in bear flags, the volume doesn’t always decline during consolidation since the declining price induces fear in traders, causing them to take action. 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.

This would give us confidence, not only that the move might not be finished, but also as to where our target could be set. Once early bears realize the strength in the overall move, they give up their early shorting efforts. By using this strategy, traders exercise patience, refraining from executing trades right away. Instead, they wait for more price movement or employ technical indicators to obtain additional confirmation and determine where their entry point should be. After the breakout occurs, traders start searching for potential entry points into the trend. There are various ways to accomplish this, with one common strategy being to wait until the candlestick that breaks the consolidation closes.

Step #3: Sell at the closing candle that generates the Flag Breakout.

This illustrates that there is still selling pressure present although traders are also entering long positions looking for a reversal and this forces price to drift in an upwards direction. The downtrend continues, and more sell positions are opened, which increases the selling pressure. As a rule, a bear flag is formed along with high trading volumes. Again, the trader could use a higher ratio as the downtrend is strong. Volume patterns may often be used in conjunction with flag patterns, with the aim of further validating these formations and their assumed outcomes. In terms of managing risk, a price move above the resistance of the flag formation may be used as the stop-loss or failure level.

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An understanding of pattern psychology may help traders grasp the concept in a straightforward way. The flag formation starts with a significant price movement that forms a solid trend. However, the trend can’t last indefinitely, so the price starts correcting. Bulls in bull flag vs bear flag a downtrend and bears in an uptrend try to turn the price around; however, if there are no fundamental factors for a trend to reverse, the trend recovers. However, it is worth noting that the longer the consolidation phase lasts, the less reliable the pattern becomes.

Bull Flag Target – Case Study

This information has been prepared by IG, a trading name of IG Markets Limited. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information.

Traders commonly rely on bullish and bearish chart patterns to try and determine whether a price trend will extend or reverse. Among these patterns, flags are quite popular in technical analysis as they can provide valuable insights into price trends and potential future movements. Bear flags form after a large price collapse that attempts a short-term up trend reversion.

What is a Bull Flag Pattern?

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Why do bull flags fail?

By definition, a bull flag pattern cannot be bearish. Flag patterns can be bullish or bearish, but a bull flag must be bullish because the price has to increase to complete the pattern. If the price decreases, the bull flag fails.

The next logical thing we need to establish for the bear flag pattern strategy is where to take profits. After we identify the market trend and the characteristics of a good bearish flag pattern we need to wait for confirmation that the trend is about to resume. The bear flag formation offers trades with promising risk-reward ratio and clear entry and exit points. After reaching an all-time high in January, the price of Bitcoin consolidated in a narrow range for several weeks, forming a rectangular shape on the chart.

Final Thoughts – Bearish Flag Pattern

Therefore, it is best to enter trades when the consolidation phase is relatively short. Additionally, bear flag patterns should always be confirmed using other indicators, like the RSI. In this article, we will discuss what the bear flag chart pattern looks like, how to identify it, and what trading strategies you can use when trading it.

What happens after a bull flag?

What happens after a bull flag? If a bull flag is accurate, it will signal the continuation of an existing bull trend and the price will rise once the pattern completes.