Bear Flag Trading Strategy Guide

Here's the thing:

If you studied most trading textbooks, you would know that a bear flag is a bearish chart pattern .

What do most new traders do?

You identify the bear flag pattern and go short immediately.

And next thing you know...

The market reverses higher and forces you out of the trade.

Then you want to know:

"What's wrong? I thought it was a simple transaction."

Well, that's because you made this big mistake.

But don't worry.

I'll show you how to fix it (and more) in today's post.

What you will learn:

What is a Bear Flag and How It Works

Don’t Make This Big Mistake When You Trade Bear Flags

How to better time your entries when trading bear flags

Bear Flag: How to maximize profits and ride huge trends

Bear Flag Trading Strategy (Formulas You Can Use)

get ready?

So let’s get started…

Bear flag definition: what is it and how does it work?

A bear flag is a bearish chart pattern that indicates the market may move lower (the opposite is called a bull flag ).

Sometimes, traders often refer to this as an inverted flag pattern instead of a bull flag pattern.

What you will see:

Strong momentum moves lower with broad candle

Weak retracement of small range candles

It looks like this…

Let me explain…

1. Strong momentum lower, wide candle range

This means the seller is in control and there is little pressure to buy.

This is why candles have a wide range, as sellers can easily push the price down.

2. Weak retracement of small range candles

There was some buying pressure pushing the price higher, likely due to traders taking profits from short positions.

If nothing changes, the market may form a bearish flag pattern and continue lower.

Now, you may be thinking:

“Let me find some bear flag patterns to short and make an easy profit!”

Well, not so fast.

that's why……

Don’t Make This Big Mistake When You Trade Bear Flags

Here's the thing:

Bear flag pattern, inverted flag pattern, or whatever you want to call it…

Not created equal.

You might see two identical bear flags, but one is worth trading for and the other you want to avoid at all costs.

Why?

Because the location of the bear flag is very important.

I'll explain...

When the market is in a downtrend, there are ebbs and flows.

It moved lower, then pulled back , then made new lows.

Think of it like a rubber band.

It will "stretch" this far before returning to the mean.

So, what does this have to do with Bear Flag trading?

simple.

when the market is "overstretched" (or away from the moving average) because price may reverse higher.

Here is an example:

Does it make sense?

great!

continue…

So, when should you trade a bear flag pattern?

In my experience, these are the 2 best times to trade bear flags…

Price is close to the moving average

First pullback after breaking support

I'll explain...

Price is close to the moving average (MA)

As mentioned before…

You don't want to short a bear flag when the price moves away from the moving average because the price may reverse higher.

Instead, wait for price to retrace to a moving average (such as the 20MA) and then look for shorting opportunities.

Here is an example:

Next…

First bear flag after breaking support

Now:

When support is broken, many traders will "chase" the market lower in hopes of getting a piece of the action.

But this is a bad idea.

that's why......

Your return risk is minimal

Your trading probability is lower

There is a high risk that you will be stopped out

So what should you do?

You wait for a bear flag to form (after support breaks down).

This is what I mean...

Waiting for the bear flag…

You have a more favorable risk reward

Your transaction probability is higher (because buyers are not showing strength)

You can set your stop loss at a logical level (above the highest point of the bear flag)

Now at this time:

You already know when to trade bear flags.

So, in the next section, you will learn how to accurately time a bearish flag pattern.

continue reading……

How to (precisely) time your entries when trading bear flags

You can use the following two techniques:

Shorting Breakouts from Swing Lows

Short Trend Line Breakouts

Let me explain…

Shorting Breakouts from Swing Lows

Here's how it works...

If the price forms a bear flag, then you can go short on a breakout of the swing low.

Here is an example:

Short Trend Line Breakouts

or…

You can short a breakout of this bearish flag trendline.

This is what I mean...

Now you may be wondering:

“So, where do I place my stop loss in a bearish flag pattern?”

Well, you could set it 1 ATR higher than the bear flag pattern high .

Because if the price reaches that level, the bear flag pattern will be invalidated and there will be no reason to continue trading.

If you want to learn more, watch the training below…

https://youtu.be/M79kxiOMJJg

Bear Flag: How to maximize profits and ride huge trends

Now…

If you only want to capture 1 lower fluctuation, you can use price prediction techniques.

Here's how it works:

Measure the length of the "flagpole"

Project this length downward from the decomposition of "Flag"

For example:

But if you want to capture the essence of the trend after entering a bearish flag pattern…

Then you must use a trailing stop .

Here's what I noticed...

Typically, when you short a bear flag, the price is usually below the 20MA.

This means you can use the 20MA to trail your stop and follow the trend lower.

one example:

Expert Tips:

If you want to go with the medium-term trend, you can use the 50MA trailing stop.

If you want to go with the long-term trend, you can use the 200MA trailing stop.

Now…

If you don't want to go with the trend and just want to catch "a move," then you can use the previous candle's high to trail your stop.

This means that you will exit the trade when the price closes above the previous candle's high.

This is what I mean...

Now you may be thinking:

"So which approach is better?"

Well, there's no best way.

It depends on you – your goals and what you want to get out of the deal.

Once you figure that out, you can find what works best for you.

Bear Flag Trading Strategy (Templates You Can Use)

Now, for any trading strategy to be complete, it needs to answer these 4 questions…

What are the market conditions like?

What is the entry trigger?

Where will you place your stop loss?

How will you exit your winner?

If you realize it, these are things you just learned before.

Then, we write it out in the form of a trading strategy (you can refer to it).

start…

If the price falls below the support level, wait for a bear flag to form.

If a bear flag forms, short the breakout of the swing low and set your stop loss 1 ATR above the swing high.

If the price moves in your favor, use a 20MA trailing stop.

Here are some examples…

Platinum Daily:

Golden Daily:

NZD/JPY Daily:

Expert Tips:

You can "tweak" your trading strategy to suit your needs (e.g. fixed target profit, tracking different MAs, etc.).

Whatever the case may be, you must do your own testing and not just "blindly" copy what is shared.

in conclusion

So, here’s what you learned today:

Bear flag pattern is a bearish trend continuation pattern

Don’t enter a bear flag trade when price moves away from the moving average

The best time to trade a bear flag is when price approaches a moving average or when it pulls back for the first time after breaking out of support

You can enter a bear flag on a breakout of a swing low or trendline

Bear Flag Trading Strategy (Templates You Can Use)

Now, I have a question for you...

How to Trade Bear Flag Patterns?