What is a Bear flag pattern?
A bear flag pattern occurs in downtrends. It is a continuation pattern, which means it signals that a give stock will continue to go down. It consists of an initial downward movement called the flag pole. This is followed by a consolidation. Followed by a breakout and continued downward movement.
In this example the stock started to fall down. Then it consolidated between $142 and $138. When it broke through it signaled that the stock would move lower. If you would have gotten in during the breakout you would have made a nice profit.
Why does this work? In this pattern the stock is heading down and takes some time to cool off. Once the stock regains its momentum it breaks down again and starts making new lows.
targetThe bear flag is said to have a target equal to the length of the flag pole bellow support. So the pole in this picture would be about $4. That means the target would be about $138-$4= $134. Obviously this flag pattern exceeded its target.
volume The volume for a bear flag is decreasing while the flag is forming. During the breakout you should see a surge in volume.
trading the pattern Traders may trade it just like a normal bearish breakout. Selling or doing another bearish strategy at the breakout and putting a stop just above the stocks new resistance.
Other Chart Patterns
Chart patterns can be used to trade practically any security. Learning them can give you a huge edge in the market. Here are a few other patterns which often occur in the market.
Bearish Pennant - A bearish continuation pattern.
Dead Cat Bounce - An interesting pattern which often forms after sudden drop in price due to bad news or bad earnings.
Overhead Supply - This is a chart pattern which tells a trader they may want to avoid trading this stock.
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