What is a Bear flag?
A bear flag is a pattern formation identified on the candlestick chart commonly during a downtrend. The pattern indicates that there is a seller’s pressure in the market while traders also open long positions. The bear flag is characterized by two price declines interrupted by a consolidation period. The bear flag pattern is composed of three elements which are:
- The flagpole – often a steep downward movement when the price records consecutive declines and forms lower lows and lower highs.
- The flag or consolidation section – is the consolidation period with possible price pullback or retracement after a strong price movement. The flag is identified as two parallel lines succeeding rebound or consolidation.
- A continuation – is the continuation of price movement toward the original downward trend.
The rebound should not move very high, and it is suggested that it should be completed at the 38.2% Fibonacci retracement. A shorter bounce back might indicate a stronger downward trend and anticipated breakout.