A trader can spot trend extensions with the help of bullish or bearish continuation patterns, which occur in a variety of easily identifiable shapes, some of the most popular of which are known as bull and bear flags.
A bull flag is appropriately spotted in an uptrend when the price is likely to continue upward, while the bear flag is conversely spotted in a downtrend when the price is likely to sink further.
(While the implication of the pattern is far more important than its name, the “flag” terminology derives from its visual similarity to the fabric you’d see hanging outside a government building.)
Each flag pattern consists of two main components: the pole and flag.
The “pole” represents a strong impulsive move (higher/lower) and is backed by a surge in trading volume and the subsequent pause or consolidation the “flag,” which looks like a falling or rising channel.
The flag pattern can be invaluable for a trader in that there are clear points of success and failure to profit or mitigate risk from. If resistance breaks in a bull flag, the trader can be confident price will continue upwards roughly the length of the pole (popularly known as measured height method).
If support of the bull flag is breached, the trader knows the pattern is invalid and continuation is unlikely. The exact opposite is the case for a bear flag.
Is this method 100% safe?
Bull flags and bear flags can be a trader’s friend in strongly trending markets, but they do not always perform as advertised. In some cases, the pattern can present a trap known as a “false breakout” when price breaches the boundary of the flag and quickly retraces.
Waiting for a candlestick to close outside of the flag tends to add credence to the breakout, and can help the trader mitigate risk.
As a trader, you would want to avoid betting or punting on an asset price if the bull flag breakout of bear flag breakout is not backed by strong volumes. A low volume move usually ends up trapping investors on the wrong side of the market.
Further, using indicators like the Relative Strength Index (RSI) to gauge scope for a rally following a breakout can help boost traders’ success rates.
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A bull flag is appropriately spotted in an uptrend when the price is likely to continue upward, while the bear flag is conversely spotted in a downtrend when the price is likely to sink further.
(While the implication of the pattern is far more important than its name, the “flag” terminology derives from its visual similarity to the fabric you’d see hanging outside a government building.)
Each flag pattern consists of two main components: the pole and flag.
The “pole” represents a strong impulsive move (higher/lower) and is backed by a surge in trading volume and the subsequent pause or consolidation the “flag,” which looks like a falling or rising channel.
The flag pattern can be invaluable for a trader in that there are clear points of success and failure to profit or mitigate risk from. If resistance breaks in a bull flag, the trader can be confident price will continue upwards roughly the length of the pole (popularly known as measured height method).
If support of the bull flag is breached, the trader knows the pattern is invalid and continuation is unlikely. The exact opposite is the case for a bear flag.
Is this method 100% safe?
Bull flags and bear flags can be a trader’s friend in strongly trending markets, but they do not always perform as advertised. In some cases, the pattern can present a trap known as a “false breakout” when price breaches the boundary of the flag and quickly retraces.
Waiting for a candlestick to close outside of the flag tends to add credence to the breakout, and can help the trader mitigate risk.
As a trader, you would want to avoid betting or punting on an asset price if the bull flag breakout of bear flag breakout is not backed by strong volumes. A low volume move usually ends up trapping investors on the wrong side of the market.
Further, using indicators like the Relative Strength Index (RSI) to gauge scope for a rally following a breakout can help boost traders’ success rates.
If you like it, please support it liking and following!
Thanks!
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