Have you ever heard the term, ‘bullish flag continuation pattern’? What about ‘bearish flag continuation pattern’?
When there is an explosively strong rise of value followed by a relatively orderly period of consolidation where the value neither rises nor falls for a period of time, this pattern is called a “flag”, after its visual similarity to a flag on a flagpole. More often this is called a “flag continuation pattern.”
When the pattern is broken, it triggers the next trend fluctuation and the value then proceeds ahead. What distinguishes the flag continuation pattern from a typical breakdown or breakout is the strong rise or fall of the price represented by the ‘flagpole’. These flag patterns can be uptrend flag patterns (bullish) or downtrend flag patterns (bearish).
For this article, let’s explore the bearish and bullish flag continuation patterns, which you can easily observe using the Binomo platform.
Bullish Flag Continuation Pattern
Take a look at the bullish flag continuation pattern in more detail. “1” refers to the flagpole. Do you see that big bullish candle right before the trend starts ranging? It gives the impression of a flagpole. The range itself, or “2” is the flag part. “3,” meanwhile, shows the continuing uptrend.
Here’s an example of the bullish flag continuation pattern when you’re trading on the Binomo platform.
Bullish flag continuation patterns is a kind of flag pattern often found on assets with strong uptrends. In this case, the pole is the result of a significant vertical rise in value, and the flag results from a short period of pullback when the highs and lows of the asset price are almost perfectly parallel to each other. The flag may be shaped like a horizontal rectangle, but it’s often angled away from the dominant trend.
The breakout happens when the price surges back towards the highs and breaks through the upper resistance trend line to trigger the next uptrend move. The sharper the flag pole is, the more powerful the bull flag tends to be.
This happens because the market sellers are caught off guard and a momentum develops where more and more buyers enter the market. Eventually, the number of buyers cool down and the sellers try to assert their momentum, which results in the ‘flag’. This happens until the trend breaks into another uptrend.
The Opposite: Bearish Flag
The bearish flag is more nuanced, as there are a lot more parts to consider. The pattern itself is composed of three parts, only one part of it is the “flag”.
Here’s an example of the bearish flag continuation pattern when trading on the Binomo platform.
In the case of a bearish flag, the flagpole describes the initial strong decline of the value of the asset over a small period of time. The shorter the time and the sharper the drop, the steeper the flagpole tends to be. However, this decline may either be a steep or gentle slope and will establish the basis for the following trend.
Next, the flag itself. Here, the flag more clearly displays the period of consolidation after the stop of the initial decline of the prices. For this period, it can be observed that the prices may slowly inch upward and slowly retrace the value lost by the previous decline. At this point, it’s advised for traders to wait for the price move into the lower lows, in the direction of the next sure trend.
When the price begins to move lower again, this becomes the final component needed to identify a bullish flag pattern. When the price breaks the lower support and triggers another downtrend, the trader can reliably enter the market with an assurance of a bearish period.
As with the bullish flag, this happens because buyers are caught off guard by the strong price reduction triggered by sellers. The flag is the buyers trying to reassert their dominance and stop the downward momentum of the asset, at least until the price breaks once again and the bearish movement continues.
Do you now know the basics of the bearish and bullish flag continuation patterns? Let us know in the comments if you have any questions! And as always, don’t forget to sign up for a free Binomo trading account and start your trading career today!
Good luck on your trading journey with Binomo!