Bear flags are continuation chart patterns found within a downtrend. They are formed after a steep price decline by two tight parallel upward sloping trend lines in a near 35-45 degree angle. The pattern is confirmed on a downward breakout of the bear flag. The approach is very similar to trading Bull Flags.
Definition of Bear Flagpole: The price swing leading to the bottom of the flag. The chart below illustrates.
Bear Flag Forex Trading Ideas
Once a bear flag pattern occurs during a downtrend, we will be looking to open a short position in the market as bear flags usually indicate the downside price action soon to continue.
Wait for a sustained break of the lower bear flag trend line. Then enter short at market on the open of the next candlestick.
Place stop loss above the upper bear flag trend line.
The profit objective is an equal distance of the flagpole A-B which is then added to the top of the upper trend channel in the bear flag. Though a currency trader could use prior support levels, pivot points, 1 to 2 risk-to-reward ratio’s… to exit the bear flag trade.
R-T-R Bear Flag Trade Example
Below is a 1 hour chart on USD/CAD. We identified a bear flag pattern setup on Oct 29th and initiated a short position after the sustained break to the downside. Our trade entry was at a price of 1.0212, along with a stop loss at 1.0244. Our projected profit target was twice the risk taken at a price of 1.0148. Approximately 1 day later, our profit objective was achieved for 64 pips.