Bear Flag vs Bull Flag in technical analysis
What is a Flag Pattern?
There are several ways to make sure that you are on the right path for your trades. the most useful instrument for success in trade is analysis. as you can see we always face two kinds of analysis; technical and fundamental, both of these are correct and useful. the point of view that we describe in this article is part of the technical analysis that is called the flag pattern.
The flag pattern is used to identify the possible continuation of a previous trend from a point at which price has drifted against that same trend.
Flags are consisted of a range from 5 to 15 price bars, and this number can be variable. the most important thing about flags is that they could have small risks and high and quick profits. a flag chart pattern is formed when the market consolidates in a narrow range after a sharp move.
|Figure 1 Anatomy of flag chart patterns|
When teaching graph patterns in technical analysis, we encounter many graph patterns. The flag pattern is one of the best graphic patterns that has a much lower error rate compared to other patterns. Usually in the midst of strong market uptrends or downtrends, we see the formation of this pattern, which marks the beginning of another uptrend or downtrend in the market.
As noted, large price spikes in markets occur as a result of breaking patterns such as the flag pattern. Entering a volatile market is usually risky, but scheduling how prices move and analyzing price trends and identifying the beginning of trends in the market is easily possible using a trading strategy based on the uptrend and downtrend patterns. In this article, we will fully learn the patterns of the ascending flag (Bullish Flag) and the descending flag (Bearish Flag) and how to trade with these patterns.
What is the difference between Bull flag and Bear flag?
It is important to note that this model is fully compatible with digital currency market conditions and experienced investors can benefit from it. It does not matter if you are using this template for long trades or shorts, it does not matter if you are a daily trader or an oscillator, in any case, the flag template works very well. In general, flag patterns are very useful for trading after a price break or in a market with a strong trend.
The world's best traders have a variety of trading strategies. However, one of these strategies is to use ascending and descending flag patterns. These patterns allow traders to enter trendy markets, anticipate price changes, and trade with less risk.
Trading with a bullish pattern helps you to recognize the continuity of the trend and easily use large price jumps in trading. A bullish flag is a technical pattern that provides an accurate entry point to participate in a strong bullish trend. Many professional traders use this continuing pattern to find the optimal levels for trading along with the trend.
In short, the main purpose of the bullish flag pattern is to help you participate in the current market trend. This means that you can use the information that this template provides to the trader to determine entry levels where the ratio of risk to risk is good. Visually, this pattern has a strong previous upward movement (flag bar) and then includes a price correction that takes the form of a flag.
A bearish flag is formed when there is a sharp downward movement and immediately afterward a short upward price stabilization. Such a pattern indicates that the urge to sell in the downward movement of the price is greater than the upward movement, and indicates that the negative trend in the price of the digital currency or the stock in question will continue.
Bearish traders are waiting for the price to fall below the support of the stabilization zone; Then they enter the market with a short or sell position. The breakout point indicates that the process that took place before the flag was formed is now continuing.
To extract the target price from the price jump, they often measure the height of the previous trend (flag bar) and extend it to a proportional distance from the jump level.
To manage risk, price movement above the resistance of the flag formation area is considered as the point of loss or failure level.
The main difference of Bull and Bear flag is:
The difference between bullish and bearish is in the direction of price movement. With an ascending flag, the idea is to take part in a strong uptrend. Meanwhile, with the bearish pattern, the idea is to make short-term trades in the direction of the dominant downtrend.
Cryptocurrencies provide an opportunity to find ascending and descending flags. This is because the market is so volatile that, depending on the timeframe chart, there are long-term or short-term trading opportunities almost daily.
What does a bull and bear flag indicate?
A bull flag suggests that the preceding uptrend will be continued, while the bear flag suggests that the preceding downtrend will be continued.
How reliable is a flag pattern?
What makes a flag pattern valid is a sharp price move. Note that both types of flag patterns will definitely form after a sharp rise or fall, if a sharp move is not observed, the transaction will be very risky. In addition, in order to validate the flag pattern, the volume of trades in the initial movement, price stabilization and the continuation of the price movement are important.
The flag pattern is one of the most reliable patterns to predict an upcoming reversal of trends or breakouts after a consolidation period; because they generate a setup for entering an existing trend that is ready to continue. Flag formations are all quite similar when they appear and tend to also show up in similar situations in an existing trend and technical analysts and traders use the flag pattern to enter the market, set profit targets, and set a stop-loss.
When all components of the flag pattern are correctly identified and present within the chart, this particular pattern is considered as an inspiration to trade and make informed decisions.
In general, flag and triangle patterns are reliable. Experience has shown that the Polish flag pattern works well and is used by profitable and experienced traders around the world. Of course, trades are full of uncertainty. However, these indicators and chart patterns reassure traders. It goes without saying that they have a set of advantages and disadvantages, and ascending and descending patterns are no exception to this rule.
Breaking the bullish flag provides a certain price level for entering a long-term trade. This pattern also has a specific point for the loss limit, which is therefore a good pattern for position management.
Risk to risk in this model is usually dreamy, meaning that the potential profit (goal) is much greater than the risk of the transaction. In other words, this is a model that can be the foundation of a good risk management system.
The rising flag pattern is a simple form to use in popular markets. The steps to identify the pattern are quite simple and straightforward.
How to identify and Trade Bull Flags:
Now that we know how to identify the pattern of the bullish flag, it is important to set specific criteria for understanding how it is traded. After identifying the flag pattern, the entry point should be located where the descending channel (flag frame structure) cannot maintain its downward movement.
The entry point should be at the breaking point of the flag, while the stop loss order should ideally be below the price correction channel. The first profit limit should be the size of the flagpole. If the trend is strong enough, the movement continues.
Of course, how you manage your trading depends on the style of each trader. However, a good strategy is to close part of the position in the same target (profit margin) first and then increase the loss limit in proportion to the price growth for the remaining amount.
The bullish flag forms during a bullish trend. The bull flag starts with a strong, almost vertical, bullish trending move which then stabilizes and then turns into a minor bearish correction with parallel tops and bottoms. The upside breakout confirms the bullish flag pattern and traders prepare for a long position. The formation of the bull flag takes short-sellers of the guard as more buyers jump into the market. The price peaks eventually, prices rise and form a pullback while the lows and highs are parallel to each other. Hence, the bull flag chart pattern resembles a rectangle or downward sloping channel because of those parallel trend lines.
How to identify the bullish pattern?
With the rise of the bullish flag, a corner is formed in the market, especially for cryptocurrency traders. Identifying this angle will help identify the price correction area before starting the previous trend.
However, first of all, the key features that we should pay attention to when trading with the bullish flag pattern. This pattern should include the previous trend in that the market should form several bullish candlesticks. Then the price correction process must take place. Usually, price correction can occur in a bearish channel, triangle, or neutral trend. The third step of the bullish pattern is to break the flag, which is a valid entry signal for traders.
Finally, follow these steps to identify the rising flag pattern:
- Step 1: Identify the uptrend. This trend usually involves several consecutive bullish candlesticks with a minimal price correction.
- Step 2: Wait for the price to correct. Usually, this correction can be placed under a downtrend.
- Step 3: Specify the failure level of the canal roof for entry.
As its name suggests, it indicates a negative and downward trend, and in the bar part of this pattern, after a little rest and stabilization of the price, this downward trend will resume. In other words, after a period of oscillation between the ceiling and the floor of the canal, the correction process will be exactly the same size as the flagpole. The bearish flag can be triangular or rectangular.
After a sharp drop, some shareholders are waiting for the trend to continue and others are selling; This causes the price to stabilize for a period of time. After a period of fluctuation in a certain range (triangular or rectangular) as soon as supply increases (selling pressure) and the support line is created, the stock falls as much as the flagpole. Will be taken. In this case, the low-risk points to buy will be as follows:
- After the defeat of the flagpole.
- After finishing the pull back to the flagpole.
The bearish flag is exactly the inverse of the bullish flag pattern. The bullish flag formation forms down to upside while the bear flag forms upside down. It has all the components that a bull flag has, but are the only inverse. The bear flag forms during a bearish trend in the market as a result of the price drop as sellers take control of the market. After the bounce or consolidation channel in an upward direction, parallel upper and lower trend lines then form the bear flag.
Look for a preceding downtrend making a flagpole as we know that the bear flag forms during a bearish or downward trend.
After the decline, the flag appears during a period of consolidation. After the consolidation, the prices may move upward retracing a portion of the initial decline.
Now look for the continuation component of the flag when the prices begin to fall to continue the original trend.
How to trade when you see the bearish flag pattern?
In the downtrend, the bearish flag shows a slower integration after an aggressive move. This indicates a greater sales enthusiasm in moving downwards than in moving upwards and pointing to moving as a residual negative for desired security.
Traders of a bearish flag may wait for the price to break below the consolidation support to gain a short entry into the market. This gap indicates that the process that preceded its formation is still ongoing.
A trading target of failure is often achieved by measuring the height of the previous trend (flagpole) and predicting the distance commensurate with the failure level.
In terms of risk management, a price move above the flag's constructive resistance may be used as a stop-loss level.
In the formation of the bearish flag, traders hope to see the high or high volume of the flag bars. An increase or more than usual along with a downtrend (flag pole) indicates an increase in the seller's desire for security.
The bearish flag, which indicates integration and a slow retreat from the downtrend, should ideally have little or no volume in its formation. This indicates less willingness to buy to move against the trend.
The high volume moves down (flag bar) and the low volume moves upwards, suggesting that the overall movement for the market is negative. It continues the assumption that the previous downtrend is likely to continue.
Advantages and Disadvantages of Trading the Bull Flag Pattern:
Any technical tool has benefits and limitations. The bull flag is no exception because it's not an easy pattern:
Breaking the bullish flag provides a certain price level to enter into a long-term trade. This pattern also has a specific point for the loss limit, which is, therefore, a good pattern for position management.
The potential profit (goal) is much greater than the risk of the transaction. In other words, this is a model that can be the foundation of a good risk management system.
The bullish flag pattern is a simple form to use in popular markets. The pattern identification steps are quite clear and simple.
Works in all the financial markets and not just Forex.
Provides traders with a signal on the continuation of the uptrend.
The main risk of a bullish flag pattern is the possibility of misinterpreting the dominant market trend. In a suffering (neutral) market, people may experience negative results by implementing this pattern because they have not correctly identified the dominant trend.
In short, the Bullish Flag pattern is relatively common. This indicates a strong uptrend and the breakdown of the flag structure is the best entry point to maximize the ratio of risk to reward. Using the Bullish flag, digital currency investors who missed the beginning of the trend now have the opportunity to reap the benefits of continuing the dominant trend. Daily trading of securities, stocks, or cryptocurrencies requires risk management. As you know, there is no risk-free return. No matter how strong your analysis is, you may not have a successful trade due to the market supply and demand mechanism. So always consider risk management in your positions.
Experienced traders often look for breakpoints in the trend, and learning the pattern of the flag and recognizing it can alert you to a breakout before it occurs. The pattern of the flag is frequently seen in the charts and indicates a rapid break of the stock price up or down. Flags are an important signal in uncertain markets because, after a price break, they create a sense of relative confidence for the trader. The flag pattern is applicable on its own but can be used to validate other patterns, such as more complex patterns, such as butterfly or gartel patterns.
The flag pattern is one of the most widely used continuous patterns in technical analysis that analysts use to identify the leading trend. In this article, we examined the details of the flag pattern and how to use it. In general, in technical analysis, when using flag patterns, it is better to pay attention to volume indicators and price movements so that the analysis is more reliable and less risky.
flag patterns are the best and trusted way for trade no question. as you know there are many ways and tricks for trade that make a flag pattern only an option another way that could be more useful is copy trading. in Aron Groups broker you can benefit from so many ways and options for trading and guarantee your trade to be successful.
Written by: Mohsen Mohseni (Aron Groups).