What Is a Bear Flag Pattern? How to Use it to Trade Crypto Effectively
In a textbook example, a pullback should end at around 38.2% Fibonacci retracement. The shorter the rebound, the stronger the downtrend is, and the stronger the breakout is expected to be. The buyers use the consolidation to try and weaken the momentum of the sellers, who are in control of the price action. On the other hand, the bears take a step back to consolidate the most recent gains and prepare for another push lower. From beginners to experts, all traders need to know a wide range of technical terms. It is important that the amount of capital you invest into any trade is in keeping with the principles of proper portion sizing and that you do not overcapitalize any individual position. A common saying among members of the financial community is that past performance is not indicative of future results.
We can see here on the weekly chart that GRT has broken up from its descending channel and price action is currently very close to the descending channel’s breakout target. Much like many other crypto assets at the moment, we can also see that that descending channel has a large flag pole attached to it as well forming a bear flag. A bear flag signifies a pause in price movement after a rapid price decline. It is a sign of profit taking on the side of short sellers and early buying on the side of buyers who were apparently expecting an exhaustion move to buy into the market. When trading bearish flags the length of time the pattern has taken to form should be taken into account. This is due to the fact that the longer the flag has taken to form the more likely it is to fail or experience a weak price move after the breakout.
Can a Bear Flag Break Up?
However, they work just as good on daily charts too and are great for swing trading. Place stop orders below the bottom of the consolidation pattern. The value of an investment in stocks and shares can fall as well Bear Flag Pattern as rise, so you may get back less than you invested. Enjoy technical support from an operator 5 days a week, from 9 a.m. Due to different market events, the price may reverse before your Take-Profit is triggered.
Any and all information discussed is for educational and informational purposes only and should not be considered tax, legal or investment advice. A referral to a stock or commodity is not an indication to buy or sell that stock or commodity.
Trading the Bear Flag Pattern
The information on this website does not constitute financial advice, investment advice, or trading advice, and should not be considered as such. MakeUseOf does not advise on any trading or investing matters and does not advise that any particular cryptocurrency should be bought or sold. Always conduct your own due diligence and consult a licensed financial adviser for investment advice. If the optimal volume for the flag denotes a consolidation and gradual reversal of the downtrend, it is low or dropping. This demonstrates a lack of buying zeal for the countertrend rally.
- You’ll have a sharp down move on high relative volume followed by a slight pullback before continuing on the trend.
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- Once we spot the flag, we move to a wait-and-see regime to see whether a break of the supporting trend line will occur.
- There are a number of different trading strategies that you can use when trading bear flag patterns.
Contrarily, the first option means you can’t miss out on a trade as there are no guarantees that a throwback may take place at all. Many traders are too eager to enter the market and frequently “jump the gun” before the actual breakout has even occurred. Hence, do remember the pattern https://www.bigshotrading.info/ goes “live” only when the breakout takes place. More precisely, the flag will tell us whether the consolidation phase is over as the sellers increase their pressure. The breakout provides us with precisely defined levels to play with, as you will see in the example below.
How Do You Trade a Bear Flag?
Trading academy Learn more about the leading Academy to Career Funded Trader Program. Once you have selected the relevant trade pair, click on the Indicatorsbutton at the top of the chart and a new window will pop up. Input RSI in the search bar and you will find the indicator. † To check the rates and terms you qualify for, one or more soft credit pulls will be done by SuperMoney, and/or SuperMoney’s lending partners, that will not affect your credit score. SuperMoney.com is an independent, advertising-supported service. The owner of this website may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website.
What is the difference between bear flag and bear pennant?
Both patterns are consolidating a downtrend, which then leads to a further break lower in price. However, there's a slight difference in their shape. The bear flag has a rectangular look in the consolidation phase, while the bear pennant resembles a triangle.
Both patterns have flag poles and periods of consolidation with the period of consolidation trending in the opposite direction of the prevailing trend. This means that in a bearish flag, the consolidation trends slightly higher, and in a bullish flag, the consolidation trends slightly lower.
How to Identify a Bear Flag Pattern?
Once the drop concluded, the value of the stock began to consolidate and started trending slightly higher. These price fluctuations provided us with our much-needed support and resistance lines.