Business, Legal & Accounting Glossary
A chart pattern named for the fact that its initial formation (the flag pole) takes place in a rapidly declining market. Once the pole is formed, a short period of consolidation results in a series of bars in which the highs and lows rise at the same rate, forming a parallel upward-sloping channel. Technicians view a bear flag as a neutral indicator and will place orders above and below trend lines drawn along the tops and the bottoms of the flag, then play the one that gets filled on the breakout. Compare to Bull Flag.
A bear flag is a bearish chart pattern formed by two declines separated by a brief retracement period.
The flagpole is formed by an almost vertical panic price drop as bulls are caught off guard by sellers, followed by a bounce with parallel upper and lower trendlines that form the flag.
Profit-taking brings the initial sell-off to an end, and the market settles into a tight range with slightly higher lows and higher highs.
This shows that there is still selling pressure present, but traders are also entering long positions in search of a reversal, causing price to drift upwards.
Traders should be prepared to take action if price breaks through the lower range level and/or makes a new low during the consolidation, as this indicates the bears are back in control and ready to force another sell-off.
When the lower trendline is broken, panic sellers emerge as the downtrend resumes another leg down.
Because of the potential increase in overhead resistance, the success of a bear flag can be greater after a significant downside move.
This shows that there is still selling pressure present, but traders are also entering long positions in search of a reversal, causing price to drift upwards.
Traders should be prepared to take action if price breaks through the lower range level and/or makes a new low during the consolidation, as this indicates the bears are back in control and ready to force another sell-off.
When the lower trendline is broken, panic sellers emerge as the downtrend resumes another leg down.
Because of the potential increase in overhead resistance, the success of a bear flag can be greater after a significant downside move.
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This glossary post was last updated: 8th April, 2022 | 0 Views.