As we all are familiar that online trading has taken the game into its hands. So, saying that online trading is a game-changer in the online world would not be wrong about Bullish and Bearish Flag Patterns.
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Everything about Bullish and Bearish Flag Patterns
What is Flag Pattern in Bullish and Bearish Flag Patterns?
A flag pattern is a price chart having two trends in it. A dramatic counter-trend is known as the flag that follows a short-lived trend known as the flag pole.
The flag pattern embodied price action and representative volume indicators. After a period of consolidation, flag patterns indicate trend reversals or breakouts.
Types of Flag Pattern in Bullish and Bearish Flag Patterns:
As already mentioned above that two patterns are observed while practicing technical analysis of flag patterns, such as
- Bullish Flag pattern (upward)
- Bearish Flag Pattern (downward)
Let us know these trends/ patterns in detail:
Bullish Flag Pattern:
Bullish flags are also known as upward patterns. The formation of the bull flag prevails in commodities with striking upward trends and continuation patterns. The reason they are named bull flags is that the pattern compares with a flag on a pole. The flag formation occurs from an interval of consolidation, while pole forms due to a vertical rise in stock.
As additional buyers enter the market, the bull flag forms, catching short-sellers off guard. Finally, the prices rise to a peak, climb, and form a retreat, with lows and highlights parallel to each.
3 Major Elements:
- The flagpole – the price of the asset must rise in a succession of higher highs and lower lows
- The flag – A consolidation between two parallel trend lines is required.
- The breakout – the breakout resides upwards, it indicates an active pattern, but when the supporting line broke, it reflects invalidation.
After clearing the concept of the bullish flag pattern, now, it is time to understand it with an example.
The increase in price action occurs when the initial trend moves and subsequently decreases through the consolidation area. Although a tremendous volume rise is not always associated with a breakout, analysts and traders want to see one since it indicates that fresh investors and traders have entered the stock in a new wave of enthusiasm.
Bearish Flag Pattern:
Bearish flags are also known as downward patterns. It is similar to a candlestick chart pattern in which the downward trend expands when the momentary break ends.
During a bearish market trend, the bear flag forms when the price declines, and this happens when sellers take control of the market. You can see the bear flag pattern when parallel upper and lower trend lines form a bear flag after an upward bounce or consolidation channel.
3 Major Elements:
- The flagpole – the price of the asset must trade lower in a sequence of higher highs and higher lows
- The flag – in an uptrend, a consolidation must take place between two parallel trend lines.
- The breakout – a breakout occurs when the supporting trend line smashes, indicating that the pattern is active.
When it comes to elaborating the bearish flag, we take the example of the above pattern.
During the consolidation phase of a bearish flag formation, the volume does not necessarily decrease. It is just because the investors worry about dropping prices that tend to cause negative and downward prices. The greater the urgency for surviving investors to act, the lower prices get.
As a result, these moves have higher-than-average (and increasing) volume patterns. When the price stops falling, the increasing volume may not fall but remain constant, signaling a break in anxiety levels. The downward breakthrough in a bearish pattern may not be as striking as the upward breakout in a bullish pattern because volume levels are already high.
In closing, it is significant to keep in mind that Bullish and Bearish Flag Patterns do not always provide the same movement. If you evaluate trade targets through observing a replication of the first up or down move, the result may vary accordingly. Furthermore, the flag does not always have a smooth rising or descending channel.
What matters most is that the overall pattern adheres to the above-mentioned main phases. So, keep practicing the trading day and night for the best outcomes!