Crypto is a volatile market and novice traders, or even experienced traders who don’t understand the intricacies of this market, often get roped into bearish flags. Bullish flags are an indication for a bullish run on the cryptocurrency and can be observed at various points in time on any given crypto asset. They can be observed more frequently near the resistance of key Fibonacci levels. Bearish flags arise when a strong pullback following a significant rally indicates more losses to come.
Bullish flag and bearish flag are indications of reversals of the trend. It is important to identify whether the price is within the flag or just a correction before the next rally when looking at a chart. The following are factors that can help you decide between a bullish or bearish flag:
1. Duration of the flag: Bullish flags last 2-5 days whereas bearish flags last 5-15 days.
2. Volume and Accumulation: Bullish flags have much lesser volume and heavy accumulation than bearish ones which have more volume and distribution than accumulation.
3. Basis of the move: The price is likely to break the upper boundary of a bullish flag before breaking a bearish one. This can be observed by looking at the hourly candles and the RSI values for each case.
4. Break out: Bullish flags usually break out above resistance whereas bearish flags break below support levels.
What Is a Bull Flag Pattern?
A bull flag pattern is a reversal pattern that occurs when a price rises above the upper boundary of the flag, which is typically marked by two horizontal lines. The horizontal line(s) is drawn between the highs and lows of price bars and then higher. These bullish reversals tend to last for about 3 days, but some artists may draw them to their own liking. Furthermore, the pattern can be drawn vertically as well, with the price bars rising instead of moving.
The two horizontal lines represent support and resistance levels of the current range. As the price is rising, it moves above the upper line. This is what makes this bullish reversal pattern a flag, as it can be used to identify a trend before it reverses. Like other bullish reversal patterns, bull flags can be easily identified by drawing the horizontal lines between the highest and lowest price points of a trading range. It is sometimes said that a bull flag should have at least two to three lower highs and higher highs within the pattern before it can be considered a valid bull flag.
A big difference between this pattern and others is that this pattern hovers near the same price level for an extended period of time. As its name suggests, it looks like a flag flying in the wind. When the price breaks above the horizontal resistance line, that is a sign of a possible trend reversal. A bull flag is one example of a chart pattern representing a temporary movement pause that usually precedes an important change in trend direction. The length and height of the flagpole (breakout point) are also factors that are used to determine whether or not a pattern is real. You can examine the stock’s price relative to its moving averages to determine this.
What is a Bear Flag Pattern?
Bear flags are a reversal pattern that occurs when the price falls below the lower boundary of the flag, which is typically marked by two horizontal lines. The horizontal line(s) are drawn below lows in price bars and then move lower. These bearish reversals tend to last for about 2-5 days but some artists may draw them to their own liking. Furthermore, the pattern can be drawn vertically as well, with the price bars falling below their respective lows.
The two horizontal lines represent support and resistance levels of the current range. As the price is moving lower, it goes below the lower line. This is what makes this bearish reversal pattern a flag, as it can be used to identify a trend before it reverses.
Like other bearish reversal patterns, Bear flags can be easily identified by drawing the horizontal lines between the lowest and highest price points of a trading range. It is sometimes said that a bear flag should have at least two to three higher lows and lower highs within the pattern before it can be considered a valid bear flag. As with other bullish reversal patterns, a big difference between this pattern and others is that this pattern hovers near the same price level for an extended period of time. When drawing bear flags, it is also common to place green backgrounds on the area where the price first dips below support before moving back up again. This helps to visually demonstrate this bearish pattern.
When drawing bull flags and bear flags, it is also important to pay attention to the angle that each one approaches from and then the angle it moves towards, because these will determine the direction that the price ultimately reverses through. Like a bull flag, a bear flag can be drawn horizontally or vertically. When drawn horizontally, price bars move lower but it has a similar appearance to a normal bullish reversal pattern with a bullish flagpole in between the highs and lows of price bars.
Conclusion
Bull and Bear flags are reversal formations that occur when a price moves in one direction for an extended period of time before reversing to the opposite direction. Excluding any major economic or political announcements, reversal patterns like these can help traders make more informed trading decisions. Identifying these patterns can also make it easier to determine a trade’s risk-reward ratio and place stops at appropriate levels to make sure any losses will be kept at a minimum. Therefore, it is important for any trader to be able to identify a flag pattern and use this knowledge in their own trading strategies. Knowing the differences between bullish and bearish flags will allow traders to realize the positives and negatives of each specific pattern, allowing their own trading platform(s) to be tailored accordingly.
