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Bear Flag Pattern: Why Traders Must Avoid Bearish Flags

Bear Flag Pattern

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. You can “adjust” the trading strategy to your own needs (like having a fixed target profit, trailing with different MA, etc.). When Support breaks, many traders will “chase” the market lower hoping to catch a piece of the move. If nothing changes, the market is likely to continue lower by forming a bearish flag. The flag, which represents a consolidation and slow pullback from the uptrend, should ideally have low or declining volume into its formation.

  • At this point the market has finished consolidating and is now trending in the original direction.
  • One of the first experiences most day traders learn when they start trading is price action trading.
  • The slope of these trendlines can be either up or down, but they must be parallel to each other.
  • Nobody can for sure, but the only way to get better is to practice, preferably with small amounts at the beginning.
  • A bear flag pattern is the opposite of a bull flag pattern, exhibiting an initial downside move followed by an upward consolidation inside a parallel channel.

A more aggressive trader who is sure that the market will continue going down might get into the market before the breakdown point and near the resistance trend line. A more conservative trader might only open a short at the breakout point and possibly with further pullback and confirmation. As the market was trending down beforehand, this spike often forms with more bad news about the asset. For instance, if a company owes money to creditors and officially defaults on this debt, this can cause an immediate drop in price. To spot a proper bear flag formation as a chart pattern, the following elements need to exist.

A Bear Flag Trading Strategy (a template you can use)

See below the differences between the bull and bear flag formations. The main idea is to open a short position as soon as the price breaks below the pattern’s bottom line. The time it takes for a stop order to be executed is difficult to predict because it depends on market volatility and a flag pattern breakout. If you trade smaller timeframes such as M15, M30, or H1, your order will likely be filled within a day.

Suppose you’re trading ETH USDT on the daily chart, and you notice a bear flag pattern forming. To minimize potential losses, some traders may also place a stop-loss at the flag’s base, the consolidation phase’s lowest point. This will limit the potential losses if the price moves against the trade. Traders tend first to identify a bullish trend that has started to consolidate.

Bull Flag Pattern vs Bear Flag: Trading Examples

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. Now that you know what bull and bear flag patterns are, let’s dig into their characteristics. Bull flags form after a price spike that peaks out and slowly forms a short-term reversion downtrend. The starting points for the trend lines should connect the highest highs (upper trend line) and the highest lows (lower trend line) to represent the flag portion.

  • Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.
  • When trading a bear flag chart pattern, traders should wait for the price to break out in either direction and place a tight stop loss because of the unreliability of this pattern.
  • A sharp drop usually occurs amid negative news or weak economic data.
  • It is disappointing if they were going long on the asset, expecting it to appreciate in value over time.
  • In this case, many traders will look for a bear flag pattern to determine a good place to get into the market while expecting further price declines ahead.
  • In an uptrend a bull flag will highlight a slow consolidation lower after an aggressive move higher.
  • Imagine the price drops, the consolidation starts, and the candlesticks move within a narrow range.

It is a powerful tool, but just like any other element of technical analysis, it should not be used in isolation. Since bull and Bear Flag Patterns represent that an asset is overbought or oversold, respectively, they’re often combined with various technical indicators, like the RSI. There are a number of different chart patterns that traders have to watch out for to optimize their trading strategies. Today I’m going to show you exactly how to trade bull flag and bear flag patterns for massive (consistent) profits.

Step #5: Take Profit target equals the same price distance of the Flag pole measured down from the top of the bearish flag.

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. The chart above shows the bull flag on an hourly chart of the EUR/USD pair. A trader could open a buy position after the breakout candlestick (1) or the second candlestick after the breakout (2). The second candle is bullish and long, which could confirm a trend continuation. In January 2018, Bitcoin experienced a significant price drop, forming a bear flag pattern.

Is a bear flag good?


The pole is a sharp price decline; the flag is a price consolidation. A bear flag is a continuation pattern, suggesting the price will decline after the consolidation phase. All bear flags should be avoided as they have a low probability of success.

It is disappointing if they were going long on the asset, expecting it to appreciate in value over time. For those traders who short the market, however, an extended market downturn is exactly what they would like to see. Perhaps they had an opening bet, and as the market continues to decline, they want to deploy more capital in a short position to take advantage of the price’s continued descent. In this case, many traders will look for a bear flag pattern to determine a good place to get into the market while expecting further price declines ahead. The flag pattern is a common technical analysis tool that allows us to predict and prepare for a bullish or bearish entry ahead of time.

Everything About the Bear Flag Candlestick Pattern

We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. Bear flags can be stronger when the swing low that begins the pattern is also an all-time low due to the possible lack of underlying support. Join thousands of traders who choose a mobile-first broker for trading the markets. From beginners to experts, all traders need to know a wide range of technical terms. A bit different from the GBPUSD flag above, this bullish flag on AUDCHF extended almost an equal distance to that of the flag pole itself.

  • Flag patterns start off violently as the ‘other’ side gets caught off guard on the trend move or as bulls/bears become overambitious.
  • A continuation pattern, like the bearish flag, brings some good news because it tells you after the market has gone down, that it will continue to go down even more.
  • In a bullish flag pattern, you will need to identify the initial price increase, referred to as the flagpole.
  • The material provided is for information purposes only and should not be considered as investment advice.

Well, you can set it 1 ATR above the high of the Bear Flag pattern. You wait for a Bear Flag to form (after the breakdown of Support). You might see two identical Bear Flags but, one is worth trading, and the other you want to avoid at all cost. This means the sellers are in control with little-to-no buying pressure.

IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. Discover the range of markets and learn how they work – with IG Academy’s online course. ThinkMarkets ensures high levels of client satisfaction with high client retention and conversion rates. Harness past market data to forecast price direction and anticipate market moves.

On the other hand, the bear flag pattern indicates a strong downtrend; thus, a bearish breakout of the bear flag can be an excellent opportunity to short the digital asset. The bear flag pattern is an unreliable chart indicator, with success rates of 45 percent during a bear market and a low average profit of 9%. The bear flag pattern is considered a continuation pattern, but the evidence shows it is both a continuation and a reversal pattern. The bear flag has an almost 50% chance of continuing or reversing the trend. Considering the average change after the breakout is only 9%, it is not worth trading this pattern.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money. This information has been prepared https://www.bigshotrading.info/blog/day-trading-vs-swing-trading-whats-the-difference/ 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.

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