What is a Flag Pattern?A flag pattern is a type of technical analysis pattern that is often seen and used to find out if current market trends are likely to continue.
It is characterized by a period of consolidation, during which the market moves within a small range after a big price change.
After a big move, when the market goes back to normal, this pattern appears. The flag pattern is called a continuation pattern because, once the flag breaks out, it often means that the market will keep going in the same direction as the trend before it.
This breakout usually happens when the price of the security breaks through the top or bottom of the flag, and trading volume usually goes up at the same time.
The difference between a Bull flag VS Bear flagThe way the price moves is what makes a bullish flag different from a bearish flag. The idea behind the bullish flag is to join a strong uptrend. For the bearish flag pattern, on the other hand, the goal is to trade short in the direction of the downtrend.
- Downtrend vs. uptrend: A bull flag and a bear flag are both continuation patterns that form when the price of a stock or asset pulls back from the main trend in a parallel channel.
- Bull flag: A bull flag is a sharp, high-volume rise in the price of an asset or stock that shows a positive change.
- Bear flag: A bear flag is a sharp drop in volume that happens when something bad happens.
- Bull flag and bear flag are alike in the following ways: Flag Patterns have a flag, a flag pole, support and resistance levels, breakout points, and price projections.
Entry opportunitiesThe entry is the most important part of any trade with a flag pattern. To avoid getting burned by a false signal, it's best to wait until a candle closes past the breakout point before making any orders. In the example above, the trades are made with a high-risk, high-reward mindset and a stop loss below the flag pattern. Most traders will enter a flag pattern trade the day after the price breaks beyond the trend line. Most of the time, the length of the flagpole is used to figure out the profit goal. Even when it's clear that a flag pattern is forming, there's no guarantee that the price will move in the way that was expected. As with most types of technical analysis, flag patterns work best when used on longer-term charts, where you have more time to think about your strategy and analyze the price action.
