The bear flag pattern is found in a downtrending stock. This pattern is named for the resemblance of an inverted flag on a pole. The bear flag is a continuation pattern which only slightly retraces the decline preceding it. The technical sell point is when price penetrates the lower trend line of the flag area, ideally on volume expansion.
Context: Found within a downtrend.
Appearance: The decline has solid volume and consistent downward price action, which forms the vertical look of an inverted flagpole. The resting period and slight retracement is narrow price action with a slight upward tilt or is horizontal (but no downward movement) with volume contracting during the flag portion of the pattern. The flag portion of the pattern has highs and lows which can be connected by small trend lines which are parallel, giving the flag portion the look of a small channel.
Breakout Expectation: The height of the flagpole may be subtracted from the breakout area at the end of the flag to determine the expected decline which follows. This is why the bear flag pattern is often found in the middle of stock declines.
This stock formed a bear flag pattern during its downtrend. The bear flag was merely a resting period for this stock prior to more selling. The bear flag pattern was confirmed as the lower trend line was broken to the downside.
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Be sure to learn about the bull flag pattern too.
