Chart pattern: Bearish flag
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What is a bearish flag?
A bearish flag is a continuation pattern. The flag is formed by two parallel bullish lines that form a rectangle. It is therefore oriented in the opposite direction to the trend that it consolidates. Unlike a bearish channel, this pattern is very short term and indicates the need for sellers to take a break.
The bearish flag’s formation occurs in a bearish trend. Most often, this pause occurs halfway through the movement.
The objective is calculated in relation to the initial trend. The height of the entire bearish movement preceding the bearish flag’s formation is calculated and then plotted on the last high point of the pattern.
Graphical representation of a bearish flag
Statistics on bearish flags
Here are some statistics about bearish flags
In 87% of cases, there is a bearish exit
In 90% of cases, it is a continuation pattern
In 62% of cases, the target of the pattern is achieved
In 10% of cases, a pullback intervenes on the support
76% of the flags used are in the lower 1/3 of the annual range
Notes on bearish flags
- The stronger the movement before the flag is formed, the stronger the movement after the bearish exit will be
- The performance of a flag is much lower when it is oriented in the direction of the trend
- A flag with narrower straight lines is more effective than a flag with lines wider apart
- A flag is stronger if there are no false breaks
- Pullbacks are detrimental to the pattern’s performance
Trading strategies with bearish flags
The traditional strategy:
Entry: Open a short position at the break out of the lower limit
Stop loss: The stop is placed under the last highest one
Objective: Theoretical objective of the pattern
Advantage: The movement in the event of a bearish exit is often strong
Disadvantage: As the objective is not often achieved (62% of cases), it is necessary to determine the price objectives yourself.
The aggressive strategy:
Entry: Open a short position on a point of contact with the flag’s resistance line from the 3rd point of contact
Stop loss: The stop is placed above the last highest point that has just been reached
Objective: Theoretical objective of the pattern
Advantage: Exit is bearish in 87% of cases
Disadvantage: The bearish break out has not yet been confirmed
For your information: The bearish flag is a continuation chart pattern. Its opposite is a bullish flag.
