Bear Flag is a
sharp, strong volume decline, several days of sideways to higher price action
on much weaker volume followed by a second, sharp decline to new lows on strong
volume.
The technical target for a bear flag pattern is derived by subtracting the height of the flag pole from the eventual breakout level at point (e).
Even though flags and pennants are common formations, identification guidelines should not be taken lightly. It is important that flags and pennants are preceded by a sharp advance or decline. Without a sharp move, the reliability of the formation becomes questionable and trading could carry added risk. Look for volume confirmation on the initial move, consolidation and resumption to augment the robustness of pattern identification.
The technical target for a bear flag pattern is derived by subtracting the height of the flag pole from the eventual breakout level at point (e).
Even though flags and pennants are common formations, identification guidelines should not be taken lightly. It is important that flags and pennants are preceded by a sharp advance or decline. Without a sharp move, the reliability of the formation becomes questionable and trading could carry added risk. Look for volume confirmation on the initial move, consolidation and resumption to augment the robustness of pattern identification.
Bearish flags are comprised of higher tops and higher bottoms.
"Bear" flags also have a tendency to slope against the trend. Their
trendlines run parallel as well.
- Sharp
Move: To be considered a continuation pattern, there should be evidence of
a prior trend. Flags and pennants require evidence of a sharp advance or
decline on heavy volume. These moves usually occur on heavy volume and can
contain gaps. This move usually represents the first leg of a significant
advance or decline and the flag/pennant is merely a pause.
- Flagpole:
The flagpole is the distance from the first resistance or support break to
the high or low of the flag/pennant. The sharp advance (or decline) that
forms the flagpole should break a trend line or resistance/support level.
A line extending up from this break to the high of the flag/pennant forms
the flagpole.
- Flag:
A flag is a small rectangle pattern that slopes against the previous
trend. If the previous move was up, then the flag would slope down. If the
move was down, then the flag would slope up. Because flags are usually too
short in duration to actually have reaction highs and lows, the price
action just needs to be contained within two parallel trend lines.
- Break:
For a bullish flag or pennant, a break above resistance signals that the
previous advance has resumed. For a bearish flag or pennant, a break below
support signals that the previous decline has resumed.
Targets: The
length of the flagpole can be applied to the resistance break or support break
of the flag/pennant to estimate the advance or decline.
Looking at the chart GBPUSD is trading
near the critical resistance at 1.5680 and is expected to give a sharp reversal
from current level. If the resistance of 1.5700 is holding and sustain trading
is seen below 1.5500 will enter in negative trend where on lower side it will
move and test the lower trend line where it can test the level of 1.5050 support
level where point E is expected to test and sustain trading below 1.5050 will
confirm the down side breakdown of the Bear Flag Pattern. Height of the Pole is
1420 Pips (1.6250 – 1.4830). Immediately it is expected to test support at 1.5050
and Bear flag pattern breakdown is expected at same level. Sustain trading
below 1.5050 will bring lower level target of 1.3600[(1.6250-1.4830)-1.5050]
height of the Pole from the Breakdown point of 1.5050 level.
