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A flag pattern is a chart formation followed by technical traders to identify potential trend continuations. Traders often favor flag patterns due to the potential for significant trends that can emerge afterward. There are two main types of flag patterns: the bull flag and the bear flag. In this article, we’ll review bull and bear flags, and how to spot the differences between these patterns to make informed trading decisions.
Key Takeaways:
Distinguish between a bull flag and bear flag chart pattern by spotting the direction of the pole, and expect a breakout in the direction of the pole's trend.
Trade the pattern when the price breaks out of the consolidation phase on increasing volume.
Though flags include defined entry and exit points, the patterns may not always work out as expected, so always include a stop loss in your trades.
A flag pattern is a technical analysis price pattern that indicates a continuation of the prevailing trend is about to begin. It’s a favorite of technical traders due to the powerful trends that can develop after it forms.