Bullish Flag and Bearish Flag chart pattern indicators
General Description The flag-shaped pattern, as the name implies, resembles a flag that hangs on the top of a flagpole. The formation of the pattern usually occurs when the market is volatile and prices move rapidly, either on an uptrend or a downtrend. It’s a continuation pattern that indicates the current trend would resume after a period of consolidation. During the process, the price, after a series of narrow ranged fluctuations, forms a rectangle that’s slightly tilted in the opposite direction from the original trend. From the geometric point of view, the pattern is called a parallelogram. The flag-shaped price movement can be divided into two types: Bullish Flag and Bearish Flag. Bullish Flag After the market has undergone a steep surge, a downward sloping area is formed with a narrow price change. Two trend lines can be drawn by connecting the highs and lows of this area. These two lines are parallel, and in the opposite direction of the uptrend, as shown in the picture above. It’s the phase for buyers to take a break to regroup and recharge. The upper and lower parallel lines act as resistance and support respectively. After the pattern is broken to the upside, the price will continue the previous bull trend and move higher. From a trader’s perspective, entry points can either be after the price breaks through the upper trendline or at bottom of the flag, the latter gives the trader advantages to set up the position ahead of another upward trend. The length of the flagpole can be measured as a potential profit. Key points: · It usually occurs after a large-scale uptrend with a rapid price rise. · The volume is noticeably decreasing throughout the flag-forming process. · The flag pattern is a short-term pattern, the formation period generally does not exceed 20 trading days, oftentimes, each rally and pullback lasts three to four days. Traders should be cautious If a breakout does not happen after three weeks. It’s rare to see a flag pattern on a monthly chart. If the consolidation period is too long, it may form a top. · A volume spike at the breakout point serves as strong evidence to confirm the pattern. · Two trendlines are parallel to each other, unlike pennant, where two lines are converging. Advantages · Flag patterns can be used to explain major breakouts, and if the breakout is confirmed, a significant price rise is expected afterward.…