What is a Bear Flag?
1. What is a Bear Flag?
A Bear Flag is a technical analysis pattern indicating the continuation of a downtrend. It typically forms after a sharp price decline (the flagpole), followed by a brief consolidation or slight upward retracement (the flag), before the price resumes its downward movement.
2. Structure of the Bear Flag Pattern
Flagpole: Represents a significant and rapid price decline with increased trading volume, indicating strong selling pressure.
Flag: A short-term consolidation phase where the price moves within a narrow range, often forming a slight upward channel, with decreased volume.
Breakout: Occurs when the price breaks below the support level of the flag with increased volume, confirming the continuation of the downtrend.
3. Trading the Bear Flag Pattern
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Identifying the Pattern: Look for a sharp decline (flagpole) followed by a brief consolidation (flag).
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Entry Point: Enter a short position when the price breaks below the flag's support level with increased volume.
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Risk Management: Place a stop-loss order above the flag's peak and set a profit target based on the height of the flagpole.
Real-world Examples
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Bitcoin (May 2021): Price dropped from $60,000 to $50,000 (flagpole), consolidated around $52,000 (flag), then broke down to $45,000.
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Ethereum (June 2021): Price fell from $3,500 to $2,800 (flagpole), hovered around $3,000 (flag), then declined further to $2,400