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<source: Bybit>
A flag pattern formation denotes a trend continuation on a price chart. It is a technical analysis tool traders use to identify buy and sell signals in the crypto market. The flag formation consists of a strong directional move or the pole followed by a slow counter move or the flag. A flag pattern may occur in two forms; namely,
A bear flag pattern denotes a continuation of an existing downward trend. The pole represents the initial aggressive downward move followed by an upward consolidation channel or the flag. The pattern is considered complete only when the price breaks below the flag's support line. The pattern shows greater selling pressure on the move down than up.
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<source: ig.com>
A bear flag pattern looks like an upside-down flag. The initial steep decline represents the pole. The consolidation phase that follows forms the flag. Usually, consolidation or retracement of the initial decline of upto 50% is considered acceptable. However, retracement around 40% is an ideal situation.
How to trade: Traders must wait for confirmation that the pattern is complete. This happens when the price breaks below the support level of the flag. Traders can enter a short position at this point. Any price move above the resistance level of the flag can be used as the stop loss level, and the price target can be set at a distance equivalent to the height of the flag pole from the point of the breakout below the flag. Traders should also note that the consolidation phase is accompanied by lower volumes.
<source: ig.com>
A bull flag pattern is formed after an initial uptrend representing the flagpole, followed by a falling consolidation channel representing the flag. The flag shows a slower move after the initial higher move upwards. The pattern shows higher buying pressure during the uptrend.
<source: ig.com>
A bull flag pattern can be identified by a distinct steep upward move followed by a slow downward move. The price pattern should then break out above the flag’s resistance to confirm the pattern completion. A downward retracement of around 40% is ideal, and 50% is acceptable, similar to the bear flag pattern.
How to trade: Traders should wait for the pattern to complete and confirm the breakout above the flag before entering a long position. The stop loss can be set at the support level of the flag to prevent losses in case of a possible breakout below the flag. The price target can be set equivalent to the distance of the flagpole measured from the price breakout above the flag’s resistance.
<source: ig.com>
Bull and bear flag patterns are reliable technical indicators when used along with volume guides and other technical indicators such as the RSI (Relative Strength Index) to gauge the strength of a price trend. It provides traders with good entry and exit points and can be used for smaller and larger time frames.
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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.