Traders look at different chart patterns to make better decisions. The Bear Flag Pattern is one such pattern that they pay attention to. The Bear Flag is a reliable pattern that appears during downtrends.
It forms after a quick drop in price, followed by a short break where the price moves sideways. The reason for trading this pattern is to catch the next downward move in the trend. Let us now learn more about the Bear Flag Chart Pattern.
A Bear Flag Pattern is a continuation pattern that looks like a flag on a pole turned upside down. It shows that a downtrend is continuing, with a short pause where the price moves up slightly, creating the shape of a flag.
The pattern has two main parts: the flagpole and the flag. The flagpole is formed due to a sharp drop in price at the beginning, and the flag forms during a short break where the price moves sideways.
The following are the things to look for while identifying a bear flag chart pattern:
First, there should be a quick drop in price with high trading volume. This shows strong selling and a downward trend. During the flag's upward move, volume usually decreases, showing weak buying. When the downward trend keeps going, trading volume often rises again, thus confirming that the sellers are still in control. This will therefore serve as an indication to the trader on whether he should initiate short positions or close long positions.
The price, after the drop, goes into a quiet period characterised by lower volume and a narrower range of trading.
Finally, watch out for the price to break down from this quiet period. This is usually signalled by a drop below the support level or the formation of a bearish candlestick pattern.
Here are the steps to follow to use bear flag candle pattern in trading:
The major advantages and disadvantages of bear flag candlestick pattern are listed below:
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Bear Flag Candlestick Pattern |
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Advantages |
Disadvantages |
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Clear Trade Signals: The pattern gives clear points for entry and exit. The lower trendline indicates the point of entry, while the upper trendline indicates the setting of the stop-loss. |
False Signals: The pattern sometimes gives false breakouts, which can cause losses. |
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Continues the Trend: It shows that a downtrend is most likely to continue, and if it's strong, then good profits can be expected for traders through short selling and buying put options. |
Not Great in All Markets: It doesn't perform so well in choppy or sideways markets, thus making it unreliable sometimes. |
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Ease of Finding: It's relatively easy to locate on the charts, especially if you understand technical analysis. |
Takes Time: The pattern takes time to form and give confirmation. So one needs to be patient and disciplined. |