Once you start reading about trading, you will hear the term “bull” and “bear” a lot. In short these are trends. A bullish trend is driving the price up, while a bearing trend will drive the price down. But trends aren’t often straight lines, they are patterns that also go horizontal sometimes. This guide is to help you recognize a bullish or bearish trend but recognizing continuation patterns. The bull and bear flags are the most famous of those patterns.
What are continuation patterns?
Trends can be recognized by reading the charts through continuation patterns. The bull and bear flag is the most famous one. In order to read such a pattern, you need to draw it into a chart and see how the chart continuous after the pattern. So, does the trend continue in a bullish or bearish style?
A bull flag obviously indicates the market is going up, while a bearish flag indicates the price is going down. Each pattern is made up out of two elements: the pole and the flag. The pole refers to a strong move in the market (either up or down, bullish or bearish), and the flag is the moment after, where the market is deciding whether it’s going further up or back down.
Below two examples: a bear flag signalling a downtrend in the BTC/USD price. And in the second picture the downtrend becomes the pole for the new flag, which in this case become a bull flag (only to be broken a few days later with a strong decline).
Tips on how to use flags
Bull flags and bear flags can be a very good way to signal and indicate a trend. But you need to be able to draw them in a good way, and this is difficult. These flag don’t always perform as you would expect. Sometimes a price can jump outside the flag. Take a look at the red hammer candle in the picture of the bull flag… you might misinterpret this and think there’s a continuation of the bearish moment in the market.
Therefore it’s wise to don’t let yourself be fooled by wicks too much. Focus more on the candles. When they go outside of the flag region, you can abandon the flag and approach the situation with a bearish or bullish mentality.
Another thing to keep in mind, is that reading these flags only makes sense when they are backed by high volume. If you would be trading on a small token like Drip on CryptoBridge, the candles will fluctuate a lot and that really says nothing about market sentiment. Only when there’s a lot of volume, you can be sure the bullish or bearish sentiment is legit.