Bullish and Bearish Flag Patterns: What’s The Difference?
Flag patterns in forex trading help identify the continuations of previous trends from a point at which the price swayed away against the same trend. They can determine whether the trend should resume, how rapid a price increase is and what is the right time to trade. Bullish and bearish are the two main types of flag pattern that you need to know in order to place successful trades. But what’s the difference between these two? Let’s find out.
What is a flag pattern in forex?
The Forex flag pattern is a graphical representation that appears like a slight consolidation between impulsive legs of any particular trend. When this pattern appears on a chart as a pictorial representation, the price action mostly breaks out in the exact direction of the ongoing movement. By studying and understanding these flag chart patterns, traders are able to confirm price trends, decide their entry points, and exit as per their trading capacity. This strengthens a trader’s technical analysis that is highly accurate in predicting prices and exchange rates of currency pairs. Each flag pattern consists of two main parts: The flag pole: The flagpole is the vertical line that represents a trend impulse. Every trending move has the capacity to transition into a flag, depicting that every trend impulse can appear to be a flagpole. The most significant impulse move is the flag pole, followed by a brief consolidation that seems like a flag. The flag: After the pole, a flag pattern then begins to form with the commencement of a trade within a tight range. This upward and downward movement of price fluctuations takes the appearance of the flag/flag body. It consists of price actions which are evenly distributed as tops and bottoms.
Types of flag patterns
What is a Bullish flag?
A bull flag is basically a continuous pattern that appears as a brief pause in the trend by following a strong price move, moving higher. It looks like a downward sloping rectangle, often represented by two parallel trend lines against the ongoing trend lines. During this period that we also call consolidation, volumes mostly dry up through its formation and push the pattern higher on the price breakout.
Identifying a bullish flag in forex trading
The bullish flag pattern has several components. Hence, at times it can be complex to identify it on a Forex chart. Traders need to identify and understand these components closely in order to be able to locate a bull flag as soon as it appears on the Forex charts to trade this pattern successfully. Significant things to look out for in a bull flag pattern are:
- A preceding uptrend with the flag pole
- A downward sloping consolidation
- The retracement of the flag pattern should end at less than 38% of the original trend. Otherwise, it may not be considered as a flag pattern.
- The price generally breaks higher, with a length that is equal to or greater than the flag pole’s size.
When all components of the flag pattern are correctly identified and present within the chart, this particular pattern is considered as an inspiration to trade and make informed decisions.
- Works in all the financial markets and not just Forex
- Patterns help in determining exit and entry points
- Great risk-reward ratio
- Complicated to be understood by novice Forex traders
- Not all signals work all the time
- Difficult to distinguish from the regular rectangle pattern in the chart
What is a Bearish flag?
A bear flag is a technical pattern that gives an extension to an existing downward trend. It can also be called the mirror opposite of a bull flag. The formation is underlined from an initial directional move that points downwards the ground, which is then followed by a consolidation in an upwards direction. The downward movement here is considered as the flagpole, while the consolidation is the remaining flag body. Recognizing a bearish flag is not that complicated, especially when you understand its components and what a bullish flag is. The pattern can be divided into 3 main parts, namely –
- Traders need to find the flagpole, which can be identified as a steep initial decline. It can also be a slowly sloping decline that establishes the basis of this flag trend.
- The bear flag is then identified as the represented period of consolidation that occurs after completing the initial decline of the prices. Prices may slowly go in the upward direction during this period and retrace some portion of the initial move. Then, the traders need to wait for a price break lower than the already lowered lows, in the same direction of the trend.
- Once the prices fall further, this is the point where traders find their final component to identify a bearish flag pattern. The profit target is the potential value from a currency pair’s subsequent decline in the price. The pricing can be recognized by measuring the distance in pips of their initial decline. This value is then subtracted from the peak resistance line from the consolidating flag to identify the potential profit.
Identifying a bearish flag in Forex trading
- A preceding downtrend with the flag pole
- An upward sloping consolidation
- The retracement of the flag pattern should end at less than 38% of the original trend. Otherwise, it may not be considered as a flag pattern.
- Look for price breaks lower than usual, equal to the flag pole’s length.
Bear flags are considered as an extremely reliable price pattern when all their unique formations are correctly identified and measured.
- It can be applied to all the financial markets and not just the foreign exchange market.
- Provides traders with the entry, exit, stop and limit levels.
- Favorable risk-reward ratios.
- Just like the bull flag, its only drawback is that it is a multifaceted pattern that can be challenging to be understood by novice traders due to its complexity.
Types of Bearish flags
1. Inverted cup and handle
The inverted cup and handle is a bearish continuation pattern that occurs in a downtrend and resembles the shape of a ‘cup’ (inverted u shape) and handle (upward sloping line). The pattern provides traders with ideal sell signals as it indicates that the market prices are going to fall further.
2. Falling range flags or descending flags
The falling range flag is a downtrend confirmation pattern that signals a continuous decline in currency pair prices. The flag is identified in short downtrends and provides traders with ideal exit price levels. It is called the ‘range’ flag because currency pairs' low and high prices trade in a narrow range, signalling a downtrend continuation.
3. Rising wedges
Rising wedges is a chart pattern that occurs in a market making higher highs and higher lows, signalling a bearish reversal. It provides traders with prices to either sell or short trade with an expectation of the market narrowing even further.
4. Ascending channel
The ascending channel pattern provides traders with information about the currency pair price action that occurs between two parallel upward-sloping lines. It appears in a market with higher lows and higher highs. These patterns confirm a downtrend and provide traders with ideal exit price levels.
Types of Bullish flags
1. Cup and handle
The cup and handle pattern is a bullish confirmation signal that resembles a cup in the shape of ‘u’ and the handle in the shape of a downward sloping line. The pattern provides traders with ideal buy signals as it indicates that the market prices are going to rise further.
2. Rising range flags or ascending flags
The rising range flag is an uptrend confirmation pattern that signals a continuous incline in currency pair prices. The flag is identified in short downtrends and provides traders with ideal entry price levels. It is called the ‘range’ flag because the low and high prices of a currency pair trade in a wide range, signalling an uptrend confirmation.
3. Falling wedges
Falling wedges is a chart pattern that occurs in a market making lower highs and lower lows, signalling a bullish reversal. It provides traders with prices to long a trade with an expectation of the market prices increasing after a prior downtrend.
4. Descending channel
The descending channel pattern provides traders with information about the currency pair price action that occurs between two parallel downward sloping lines. It appears in a market with lower highs and lower lows. These patterns confirm an uptrend and provide traders with ideal entry price levels.
How to draw a flag pattern?
Both bearish and bullish flag patterns can be identified during strong uptrends and downtrends, respectively. Here are five steps on how you can draw a bull flag and bear flag pattern –
- Identify strong upward (or downward) sloping bars that are formed one after the other in a particular time frame.
- Identify candlesticks with smaller bodies right after the strong upward or downward bars.
- Wait for the market to go through a consolidation to identify a small but evident trend that moves in the opposite direction of the prior trend.
- When the trend reversal is confirmed, a bullish flag pattern can be drawn right after a downtrend, and a bearish flag pattern can be drawn right after an uptrend.
- The prior trend will be identified as the flag pole pattern. The reversed trend will be identified as the body of the flag.
How to trade the bearish and bullish flags in forex?
1. Spot a prior trend
Look for a prior downtrend to trade a bearish flag and a prior uptrend to trade a bullish flag. The prior trends confirm if the pattern is going to continue in the same market direction or not.
2. Identify a narrow price range
Wait for the currency pair prices to trade in a narrow range so you can successfully spot the support and resistance levels. Any movement below the support or above the resistance level will mark a trend continuation in that direction.
3. Buy or Sell at the breakout
A market breakout confirms that the trend is continuing in the direction of the breakout. Hence, when trading the bearish flag pattern, traders can exit the market at the closing candlestick’s price at the breakout level. However, when trading the bullish flag pattern, traders can enter the market at the opening candlestick’s price at the breakout level.
4. Place the stop-loss order
In a bearish flag pattern, stop-loss orders can be placed above the flag so that if and when the market moves below this level, the trade is automatically exited. In a bullish flag pattern, stop-loss orders can be placed below the flag so that if and when the market moves beyond this level, the trade is automatically entered.
5. Place take profit orders
In both bearish and bullish flag patterns, traders can place the take profit level at a distance equal to the distance between the top of the flag and its pole.
6. Monitor trades and act accordingly
The last step to trading a bearish or bullish flag pattern is to monitor the trades regularly and act accordingly. Even when you have placed an order, it is essential to keep analyzing the market and check if the pattern is reacting the same way it suggested. Doing this helps traders avoid false market signals.
Trade the flag patterns today to identify continued market trends
Both bear flags and bull flags are represented in the same way in the same chart pattern. They are reflected in the opposite direction marking a downward or an upward slope, respectively. Strategies followed by traders to profit from these projections are similar in nature but involves a superior understanding of these patterns. You can start trading these patterns along with several others on our platform and experience a smooth trading process.
How to Trade With VWAP Indicator in Forex
The Volume Weighted Average Price (VWAP) helps eliminate any unwanted price fluctuations during the trading period.
5 Top ADX Trading Strategies
The Average Directional Movement Index (ADX) strategy measures the forex market’s overall strength.
How to Identify a Trend in the Forex Market
Identifying market trends in forex is also helpful in understanding if your trading strategy is going as per plan and where you can improve.
Forex Trading Robots: How Do They Work?
Forex trading robots make multitasking possible by processing multiple conditions like order entries/exits and entering stop loss orders automatically.
What Are Momentum Indicators in Forex
Momentum indicators measure how strong the price change is in the currency pairs.
How to Use Gator Oscillator For Forex Trading
Gator Oscillator helps in identifying a trending or consolidating market.
What is The Exponential Moving Average
Exponential Moving Average (EMA) helps in understanding the market’s trend direction.
Top Forex Volatility Indicators
Forex volatility defines the risk an investor takes in the market. The higher the volatility, the greater the risk and the higher the potential returns.
How to Use Forex Market Sentiment Indicators
Sentiment indicators in the forex market indicate extremely volatile market conditions.
How to Use The Hanging Man Candlestick Pattern For Forex Trading
The Hanging Man Candlestick pattern provides downtrend reversal signals, which helps traders place sell or short orders to profit off falling markets.
How to Add MT4 Indicators
MetaTrader 4 comes with several built-in and custom indicators to boost your trading strategy.
Top MACD Trading Strategies
Moving Average Convergence Divergence (MACD) strategies enable traders to measure market momentum and trend strength.
Top Indicators for MT4
MT4 indicators help analyse forecasted currency pair prices and place exit or entry orders accordingly.
How to Trade Bullish and Bearish Divergences
Bullish and bearish divergences enable you to trade market reversals.
Top Support and Resistance Indicators
Support and Resistance indicators identify price points on the forex chart where the markets can potentially reverse.
What is The Donchian Channel Indicator
The Donchian Channel indicator can determine volatility and potential breakout signals in the market.
How to Install MT4: A Beginner's Guide
MetaTrader 4 (MT4) is a powerful forex trading platform with a user-friendly interface and advanced analytical tools for automating trading.
What are Trendlines in Forex Trading?
Trendlines in forex provide clear market signals for placing long or short orders.
Market Order vs Limit Order
Market and Limit orders help execute automatic trading transactions, as per your trading preferences.
Bearish and Bullish Markets
In the trading world, it is essential to be aware of the bull and bear market trends because they define the direction of the market
How to Read Trading Charts
Trading forex live charts can help identify ongoing market trends, which can help you place successful traders.
Top Reversal Patterns For Forex Trading
Reversal patterns provide traders with price levels at which the market can potentially reverse.
How to Find The Best Forex Trading Signals
Forex trading signals are important market triggers that provide traders with ideal entry and exit price levels in the market.
Top Forex Trading Strategies That Actually Work
Trading in forex, you will come across several forex trading strategies -- some more complex than the others. It is immensely crucial to start forex trading with the right strategy.
Scalping vs Swing Trading: What’s the Difference?
Every forex trader has a different purpose, objective, time constraints, and investment capital. The right forex trading style for you depends on your main trading goals and requirements.
What are Volume Indicators
Volume in the forex market can be used to determine the upcoming market trends. Volume indicators are forex trading indicators that can identify if the volume for a particular currency pair is high or low, providing traders with market continuation and reversal signals
Shooting Star Candlestick Pattern
The Shooting Star Candlestick Pattern can identify bearish market reversals and provide traders with ideal price levels to short or exit the trade.
Top Trading Chart Patterns
Predicting future currency pair prices help in confirming market continuation and reversal signals.
What is Slippage in Forex Trading?
Slippages occur when a currency pair order is executed at a price different from the set market order price.
Buy limit vs Sell Stop Orders in Forex
Placing buy limit and sell stop orders help employ a price control strategy on forex trades. Let's take a look at buy limit vs sell stop orders.
The Best Time Frame For Forex Trading
A time frame is a designated time period where forex trading takes place. Time frames can be measured in minutes, hours, days, weeks, months and years.
Top Technical Indicators in Forex
Technical indicators are a market direction signal based on the current and historical price movement of a currency pair that provides traders with future price expectations
Top Continuation Patterns
A continuation pattern indicates if the current market trend is going to continue in the same direction or not
How to Ace Divergence Trading in Forex
The forex market is all about timing your trades well. Divergences give traders a market reversal signal right before a price trend changes
How To Trade Forex With Japanese Candlesticks?
A Japanese Candlestick is a technical analysis tool used to analyze the currency pair’s price movement in the forex market.
Top Momentum Indicators To Analyse Trend Strength
Momentum indicators are technical analysis tools that determine in which direction the market is headed and how strong or weak the ongoing trend is
Types of Moving Averages Every Trader Should Know
Moving Average is a technical indicator which averages out currency pair prices in a specific time period in order to accurately identify market trend reversals and support-resistance levels.
8 Popular Intraday Trading Indicators
Intraday Trading Indicators help place successful short-term trade orders in the forex market.
What is the Tweezer Candlestick Formation?
The Tweezer Candlestick formation is a reversal pattern that indicates either a market top (strong uptrend) or market bottom (strong downtrend)
Average Directional Index
The ADX is a strength indicator that measures how strong or weak a particular market trend is.
How to Use Elliott Wave Theory For Forex Trading?
The Elliott Wave Theory analyses a currency pair’s long-term price movement in the forex market.
What are Pivot Points in Forex
Pivot Points help traders identify market reversals. With Pivot Points, traders can predict the support and resistance levels of a currency pair to make entry and exit decisions.
Keltner Channel is a technical indicator that provides traders with strong continuation signals and trend directions by assessing a currency pair's price volatility.
Leading vs Lagging Indicators
Leading and lagging indicators help traders measure the future and current performance of a currency pair, respectively. These indicators can help make successful trading decisions.
What is Relative Strength Index?
Relative Strength Index (RSI) helps traders understand how frequently the currency pair prices change in the forex market to predict the future market prices.
Wide Ranging Bars
Wide Ranging Bars are strong momentum indicators that help traders understand the market direction and identify ideal entry and exit points.
Harmonic Price Patterns in Forex
Harmonic Price Patterns allow traders to predict future price movements and trend reversals to make ideal entry and exit decisions in the Forex market.
Double tops and bottoms
Double Tops and Double Bottoms chart patterns help traders identify solid bullish and bearish trend reversals in the Forex market, and in turn, find the ideal market entry and exit points.
Falling and Rising Wedges
When you are trading currency pairs in the Forex market, it is essential to know when the market can possibly reverse. The Falling and Rising Wedges pattern help identify market reversal signals and accurate market entry and exit points.
Forex Scalping Strategy
Scalping refers to trading currency pairs in the Forex market based on real-time analysis. With Forex scalping, you hold a position for a very short period and close once you see a profit opportunity.
Symmetrical Triangle Pattern
Symmetrical Triangle Patterns help identify market breakdowns (price fall) and breakouts (price rise), and in turn, help you plot the entry and exit prices for profitable Forex trading.
Introduction to Technical Analysis in Forex
Technical analysis in Forex trading provides you with significant market trends, reversals and fluctuations and in turn helps you long and short term trades.
Trading breakouts and fakeouts
Breakout and fakeout trading enable traders to take positions in rising and falling markets.
Fundamental Analysis in Forex Trading Explained
Fundamental analysis in Forex trading is one of the several methods you can use to determine the relative security and intrinsic value of a nation’s currency.
8 Top Commodity Trading Strategies
Commodity trading is one of the best ways to diversify your portfolio and protect yourself from losses incurred due to inflation.
What is a Doji Candlestick?
The Doji Candlestick is a pattern used in technical analyses of trend reversals in a market.
Moving Average: The Complete Guide
Moving Average is used in Forex trading to compare the current currency pair pricing and where it stands with respect to the current average pair prices.
What is Volatility Index (VIX) and How Do You Trade It?
One of the most popular trading markets in the world, the foreign exchange market allows investors to make quick money by trading currencies.
Forex Profit Calculator
On average, a Forex trader can make anywhere between 5 to 15% of the initial amount they invested in the market.
Understanding markets gaps and slippage
The foreign exchange rate reveals valuable details about particular currencies a trader wishes to trade-in.
What is a pip in forex?
When trading in the Forex market, you need to have a close eye on two currencies at the same time. PIP helps you denote the change in a currency pair’s value.
Introduction to order types
Order types in Forex trading determine and control how you enter and exit the market.
Using orders to manage risk
Forex risk management includes a robust set of rules and regulations that protect you against Forex's negative impacts.
Managing risk in 7 steps
Risk management in Forex is essential to individuals, groups of individuals, and organizations since it enables them to implement measures that help mitigate Forex risk and its negative impact.
Master risk management and
become an expert forex trader.
Move on to the advanced course.
Guide to Forex
Enter your details to get a copy of our
Start a risk free
News & Analysis
Catch up on what you might
have missed in the market.