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In technical analysis of the cryptocurrency and stock markets, the "bear flag" pattern is one of the key signals for traders predicting a decline in the price of an asset. This graphic pattern belongs to the category of continuation patterns and appears during a downward movement, indicating a temporary pause before further decline. Let's consider what it is, what it is for, and how to use it.
What is a "bear flag"?
"Bear flag" consists of two main parts: "flagpole" and "flag." The flagpole is a sharp price drop that reflects strong bearish momentum. After this, a consolidation period follows—the flag—when the price moves upward or horizontally within a narrow range, forming parallel lines (channel). This phase is usually short and indicates a temporary weakening of sellers before a new downward push.
What is it for?
The pattern helps traders identify moments when the downward trend is likely to continue. It is useful for determining entry points for short positions (shorts) as well as assessing the potential size of further declines. For example, the height of the flagpole is often used to predict the target level of decline after a break below the flag.
How to use the "bear flag"?
Identification: Look for a sharp price drop (flagpole) followed by consolidation in the form of a channel that rises or moves horizontally.
Confirmation: Wait for a break below the lower boundary of the flag with increased trading volume—this is a signal to continue the trend.
Entry into position: Open a short position after the breakout, setting a stop-loss above the upper boundary of the flag.
Target definition: Measure the height of the flagpole and project it downward from the breakout point to forecast the decline.
Example in the cryptocurrency market
Imagine that Bitcoin has fallen from $70,000 to $65,000 (flagpole), and then consolidated between $65,000 and $66,000 (flag). A break below $65,000 may signal a move towards $60,000.
"Bear flag" is a powerful tool, but it requires confirmation from other indicators (RSI, volumes) and consideration of market news, as volatility can distort signals. Use it wisely!