Bull flag vs bear flag
Bull and bear flag formations are price patterns taking place periodically across different time frames in financial markets. As continuation patterns per technical analysis, they tend to occur prior to the trend that comes before their formation. Thus, Bull flag vs bear flag is a study that promises profits.
Identification aids trading. We will be looking at entries and exits through breakouts, failure levels, proportionate targets, and volume confirmations.
Structuring a flag formation
A striking directional move highlights a flag pattern, subsequently succeeded by a gradual counter trend move. While the slow counter-trend is called the ‘flag’, the arresting move up is called the flagpole.
Bullish flag formation
A bull flag will underscore a gradual consolidation lower following an aggressive move higher. In this uptrend, there’s more buying optimism moving up rather than moving down. This pertains particularly to the momentum as staying positive for the security under consideration.
To find a long entry into the market, bull flag traders might wait for the price to break above the consolidation’s resistance. The breakout implies that the trend which came before its formation is now being resumed.
A breakout trading target is frequently derived by measuring the flagpole’s height. In addition, a proportionate distance from the breakout level is highlighted.
Per risk management, a price move may be considered the failure level or stop loss, provided it has moved below flag formation support.
Bearish flag formation
An inverted bull flag has the characteristics of a bear flag.
Succeeding an aggressive move lower, a bear flag will underscore a gradual consolidation higher in a downtrend. This implies more selling optimism on the move down rather than moving up. By implication, the momentum is the remaining negative for the security under consideration.
Bear flag traders might find a short market entry, succeeding the breaking of the price below consolidation support. The breakout implies that the trend that came prior to its formation is now being resumed.
A breakout trading target is frequently extracted through the flagpole’s height, which is a proportionate distance from the projected breakout level.
Per risk management, a price move may be used as failure level or stop loss, provided the move is above flag formation resistance.
Bull & bear flag trading, with volume patterns
Volume patterns frequently used with flag patterns are reinforced together with their results.
Trading beer flags and volume confirmations
When they see a bear lag formation, traders would like to see an increasing/ high volume into the flagpole, which denotes the trend before the flag.
The flag, which stands for consolidation and gradual downtrend pullback, ought to have diminishing/low volume into its formation. This implies negative buying optimism into the counter-trend move.
That the generally traded market momentum is negative is implied by the high volume into the move lower and the low volume into the move higher. In addition, the previous downtrend is assumed to keep going.
Trading bull flags and volume confirmations
Traders would like to see increasing/high volume into the flagpole in a bull flag formation. The higher than usual/increasing volume, along with the uptrend, implies an increased buying side optimism for the security under consideration.
The flag that stands for consolidation and slow uptrend pullback ought to have declining/low volume into its formation. This proves less buying optimism into the counter-trend move.
The high volume into the move higher and the low volume into the move lower imply that the traded general market momentum is positive. However, we are not sure if the uptrend will keep going.
High volume breakout
Bull and bear flag pattern traders would like to see the breakout beside a high volume bar. The breakout accompanied by a high volume bar signifies a striking force in the move, propelling the price out of consolidation and into a renewed trend. In addition, a high volume breakout implies that the breakout direction is in all likelihood going to persist
Conclusion
Plotting the upper and lower trend lines asks for patience. That’s how you start trading flags. A momentum indicator, say the stochastic, will time your entries. Precision and speed are important. Flag pattern psychology is a delicate affair calling for great attention and awareness on traders’ part. Panic does not pay.
