Today’s trading strategy is the bear flag pattern, which is one of the most reliable continuation patterns. Our bear flag chart pattern strategy provides a framework for conquering market trends.

 

 

The Trading Strategy Guides team is working hard to create the most comprehensive guide to different chart pattern strategies. To understand the psychology of chart patterns, start here: A Step-by-Step Guide to Chart Pattern Trading Strategies.

One of the first experiences most day traders learn when they start trading is price action trading. One of the most popular price action patterns you may have heard of is the bear flag pattern.

A bearish flag is a very simple continuation pattern that develops after a strong bearish trend.

It doesn’t matter if your desired timeframe is the 5-minute chart or if you prefer a long-term chart. Bear flag patterns appear with equal frequency in all time frames.

Consecutive patterns, such as bearish flags, provide good news because they tell us that the market will continue to decline after it declines.

If you miss the initial sell-off, the market is gone, and if you spot a bear flag pattern on the chart, you can enjoy the rest of the bearish trend as it is an indicator and safe place to sell.

We also provide a very clear step-by-step rule set so you can trade the Bear Flag chart pattern strategy yourself.

Moving forward we will discuss what makes a good bear flag pattern. We highlight 5 basic trading rules for conquering the market with bear flag chart pattern strategies. You can also read our simple yet profitable strategies.

What is a bare flag pattern?

Bear flag patterns consist of a descending or downtrend with a pause at a trend line or consolidation area. A strong downward movement is also called a flagpole, and a linkage is also called a flagpole.

A bear flag pattern appears after a strong downward move. The stronger the movement, the greater the profit potential.

As you can see in the picture below, after the market strengthens, it consolidates into a very narrow range to match the new lower price.

Note * For a valid bearish flag, the support and resistance lines forming the flag should be parallel and often slope upwards.

Bearish flag patterns are similar to square chart patterns. The difference lies within the square pattern and the price action moves horizontally over a much larger trading range.

The Psychology Behind the Bear Flag Pattern

Bear flag patterns highlight a trading environment where the balance of supply and demand is bad in one direction of the market (supply > demand). As a result, this prevents back-and-forth backwards from occurring, forming a flag structure.

After the initial sale, people who missed the train panic and start selling. At the flagpole stage, more people will sell it.

During pauses or narrow consolidation periods, people wait to get higher prices. However, this is unlikely to happen because the balance of supply and demand is very imbalanced. We get another smash where many will be chasing down the downside again.

Now let’s look at how to trade effectively with the Rectangle chart pattern strategy and how to make money using basic charts by default. You can also read about trailing stops or hard take profits for better trades.

 

 

Bear Flag Pattern Strategy – Selling Rules

Now that you’re familiar with the bearish flag configuration, let’s walk through our easy step-by-step guide. It will give you an easy trading strategy to skim through the market.

The best thing about bear flag patterns is that they have a very easy way to tell how low the price of a currency is.

I’ve done other things with the Bear flag chart pattern strategy. We will give you a new method on how to trade bear flags.

Now it’s time to take a look at our bear flag chart pattern strategy step-by-step guide.

Step 1: Look for evidence of previous bearish trends. It needs to drop sharply to be a valid bearish sign.

Just because you can spot a bear flag pattern doesn’t mean you should jump right into the market and trade it.

Remember we need the right context and the right price structure aligned for a tradable bearish flag.

So, the first step is to identify market trends before flag prices form.

First, a valid bearish flag should drop sharply. This is evidence of a bearish trend and supply and demand are out of balance.

Note * A sharp move is also the flag pole, the first element of a bearish flag structure.

Step 2: Identify your flag price configuration. Price action should move in a narrow range between the two parallel lines.

Flag price formation is the second component of a bear flag pattern.

Basically, you just need to find one support and one resistance level. You need to include price action in a very narrow range.

Narrow coverage is key to the success rate of the Bear Flag pattern.

So far so good.

Now you need to decide on an entry technique for your bear flag pattern strategy.

See below:

Step 3: Sell at the closing candle causing the flag dropout.

After characterizing the market trend and a good bearish flag pattern, you should wait for confirmation that the trend will start again.

There are two basic approaches to entering the market with a bear flag pattern. Aggressive traders will enter the bearish top.

If you are a conservative trader, you can wait for the confirmation provided by a breakout flag.

Our team at TSG takes a conservative approach and prefers to rest and close under a bearish flag before executing a trade.

The bear flag chart pattern strategy only looks for trading opportunities if you become a seller below the flag price structure.

The next important thing to set is your protection stop loss position.

When looking at these types of strategies, it’s important to keep everything in the context of the overall market. Too many traders try to zoom

See below…

Step #4: Place your protection stop loss slightly above the flag.

The square chart pattern strategy makes it simple to measure risk as it allows you to place some protective stop loss on top of the flag price structure.

We are achieving two things with our tight stop loss.

  • small loss.
  • The reward ratio is higher.

With a large stop loss, you can lose many trades in a row as a bear flag with an amazing RR can potentially wipe out all your losses in a single trade and still get you profitable.

The next logic we need to set up for our bear flag pattern strategy is where the returns come from.

See below…

Step 5: The take profit target equals the same price distance of the flag pole measured from the top of the bearish flag.

The textbook profit target is the height of the flagpole measured from the top of the flag.

Our team at TSG knows that the market likes this kind of price symmetry and we want to take advantage of it.

Note *** The above is an example of a SELL transaction… Use the same rules for BUY trades. However, this time we will use a bullish or bull flag. In the picture below you can see an example of a real BUY trade using a bullish flag pattern.

conclusion

Identifying a bear flag pattern is easy enough, but if the trading conditions are right, a bear flag pattern can be a good trading pattern to start growing your account. The key to bear flag chart pattern strategies is that they are strategies that only work in bear markets, and they work beautifully.

Also don’t forget to check out our previous strategy tutorial on the trading channel pattern strategy.

Thanks for reading!

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