Today’s trading strategy deals with one of the most reliable continuation patterns, the Bear Flag Pattern. Our flag chart strategy will provide a framework for conquering market trends.
Our team at Trading Strategy Guides is working hard to put together the most comprehensive guide to different charting strategies. To understand the psychology of a chart pattern, start here: Step-by-Step Guide to the Pattern Trading Strategy.
One of the first experiences day traders learn when they start trading is price negotiation. One of the most popular price action patterns you’ve heard of is the bear flag pattern.
The bearish flag is a very simple continuation pattern that develops into a strong bearish trend.
It doesn’t really matter if you are the 5 minute time frame or you prefer a long term chart. The bear flag pattern appears at the same time with the same frequency.
A continuation pattern, like the bearish flag, brings good news, because it informs that it will fall even further after the market falls.
If you missed the initial sell, the market caught up with you and you can identify the bear flag pattern on this chart, this is a signal and a safe place to sell so you can take advantage of the rest of the bearish trend.
We will also provide a very clear set of step-by-step rules so you can trade the Bear Flag pattern strategy yourself.
In the future we will discuss what makes a good bear flag pattern. We will highlight five basic trading rules to conquer markets with the Bear Flag pattern strategy. You can also read the simple yet profitable strategy.
What is a bear flag pattern?
A bear flag pattern is constructed by a downtrend or a downtrend followed by a break in the trendline or consolidation zone. The strong downward movement is also called the flagpole, while consolidation is also called the flag.
The bear flag pattern occurs after a strong downward movement. The stronger the movement, the greater the profit potential.
As you can see in the figure below, after the sharp drop, the market consolidated – a very tight range – to adjust to the new lower prices.
Note * For a valid bearish flag, the support and resistance lines forming the flag must be parallel and will be tilted upwards.
The pattern of the flag-like pattern has some similarities with the rectangular pattern. The difference is within the rectangular pattern; the price action moves horizontally across a much larger trade branch.
The psychology behind the bear flag pattern
The bear flag pattern highlights a commercial environment in which the balance between supply and demand has shifted greatly in one direction of the market (demand > demand). This in turn will produce very few headers, allowing the structure of the flag to take shape.
After the initial sale, people who missed the train will panic and start selling. More people will sell it during the flagpole phase.
During the break or the close consolidation, people expect to get a higher price to sell. But since the supply and demand equation is very unbalanced, it doesn’t. We have another scam that will cause many people to chase the downside again.
Let’s see how you can trade effectively with the pattern pattern strategy of the rectangle and how you can earn profit using basic charts. You can also read about trailing stops or taking hard profits for better trades.
Bear Flag Pattern Strategy – Selling Rules
Now that you are familiar with the formation of clumsy flags, let’s go through an easy step-by-step guide. This will create an easy trading strategy for you to navigate the markets.
The best thing about the bear flag pattern is that there is a very easy way to know how low it will send the price of the coin.
We did something different with the strategy for the running flag chart pattern. We learn a new way to change the lyrics flag.
Now is the time to follow step by step guide for the running flag pattern strategy:
Step 1: Look for evidence of a previous downtrend. For a valid bearish flag it is necessary to observe a sharp drop.
Just because you can identify the bear flag pattern doesn’t mean you should jump straight into the market and trade it.
Remember, we need the right context and the right price structure to be aligned to get a tradable bearish flag.
Therefore, the first step is to identify the market trend before forming the price of the flag.
First, a valid bearish flag needs a sharp drop. This is strong evidence of a downward trend and that supply and demand are out of balance.
Note * The sudden movement is also the flagpole – the first element of the clumsy flag structure.
Step 2: identify the price formation of the flag. The price action must move within a narrow distance between two parallel lines.
Flag price formation is the second element of the bear flag pattern.
All you need to do is identify a support level and a resistance level. It should contain the price action in a very narrow range.
The narrow range is essential to the success rate of the bear flag pattern.
So far, so good.
Now we need to determine an entry technique for our bear flag pattern strategy.
Watch below:
Step 3: Sell to the closing candle that causes the flag to break.
After identifying the market trend and the characteristics of a good bearish flag pattern, we need to wait for confirmation that the trend is about to start again.
There are two basic approaches to entering the market with the bear flag pattern. Aggressive traders will enter at the top of the bearish flag as this will ensure a slightly larger profit.
If you are a conservative trader, you can wait for confirmation through the flag break.
Our TSG team prefers to take a conservative approach, wait for a break and close under the bearish flag before executing the trade.
The pattern of the running flag patterns only look at trading opportunities if you find a break below the price structure of the flag to be a seller.
The next important thing we need to determine is where to place your protective stop loss.
It is important to keep everything in the context of the market at large when analyzing this type of strategy. Many traders will try to zoom in
Watch below…
Step 4: Place the protective stop loss slightly above the flag.
The rectangle pattern strategy provides a simple way to quantify risk because you can place your protective stop loss slightly above the price structure of the flag.
We do two things with our stop loss:
- Small losses.
- Greater risk to reward.
With such a tight stop loss, you will be comfortable losing many consecutive trades because with the incredible RR, the bearish flag can end all your losses in a single trade and still become profitable.
The next logical thing we need to accomplish for the bear flag pattern strategy is to make a profit.
Watch below…
Step #5: Take Profit’s target is equal to the same price distance from the flagpole measured from the top of the down flag.
The profit target of the book is the mast height measured from the top of the flag.
Our TSG team has learned that the market likes this kind of price symmetry and we want to take advantage of it.
Comment *** The example above was an example of a SELL negotiation… Use the same rules – but in reverse – for a BUY negotiation, but this time we use the bullish or bullish flag. In the figure below you see an example of real BUY trade using the bullish flag pattern.
Deduction
Identifying the bearish flag pattern should be an easy task, but if you have the right trading conditions, the bearish flag can be a great trading pattern to boost your account. The most important thing about the bear flag pattern strategy is that it is a strategy that only works in a bear market and works beautifully.