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Bear Flags My observation of a Bear flag is technically confirmed when you assess the following: A bear flag is consistent with an incisive, strong volume reduction on the basis of negative fundamental occurrence and then a number of sideways movements to a higher price with much weaker volume. This is preceded by a second sharp decline to new lows on solid volume.

Why Does It Happen? Bear flags are a favorite amongst technical traders because they generally conduct large and assertive price movements. Similar to other continuation patterns, bear flags symbolize little more than a fleeting pause in a stronger move lower. The flag pattern essentially forms in the middle of a decisive move lower. As with Bull flags, Bear flags occur as stocks seldom move in one direction for any length of time. Instead the movement in charge is interrupted by brief periods of time where investors reevaluate their positions.

These moments in time are described as flags or pennants. The primitive section of the bear flag design is frequently described as a flagpole or mast. Throughout this period the stock price deteriorates and falls to a reaction low – usually after some negative fundamental occasion. Quite often this will be a downgrade in guidance, poor production reports or negative earning results. The reaction causes some panic and disappointment; the traders quickly show their dismay and unload their positions, the stock dives rapidly lower. Experienced traders familiar with the stock might have shorted it, other traders are long and as the price falls they have to cover their positions pushing the price even lower. Speculators buy the stock in the belief of a quick turn around, so there could be willing buyers but they usually lose money in these conditions.

It is at this stage the next phase or flag section unfolds. Due to the inflow of data and the negative market sentiment nearly of the stock that was purchased by speculators is willingly absorbed by nervous sellers but as it unfolds over time the selling pressure subsides and the stock slowly starts to rise with limited volume. The opportunists push the share price higher, although with diluted volume the rally fades and the stock reaches a short term top.

Amid widespread bearish view the stock cost deterioration threatens to lead the stock lower to new lows. As the losses start, the volume is weak and the share price is supported by bargain hunters. As a result, the prices stabilize and a second short term bottom is established. The second bottom is at somewhat higher levels.

Encouraged by the situation, the stock failed to make a new low. The speculators are preying on the stock and buying into the market. At this time the stock rallies just above but the volume is exhausted and the rally soon dissipates. Over the next few sessions the stock trades in a narrow range consolidating as volume declines rapidly, before long the stock descends towards the established lows at.

During the next few sessions the stock breaks through the supporting low, this causes a breakout to the downside. A number of analysts report negatively to the market, usually about earnings over the next trading session and a new stage lower commences. The next trading session opens with further losses and the stock trades substantially lower in the coming weeks.

Technical signals 1. Sharp Move: for a continuation pattern to be considered, it requires supporting evidence of a prior trend. These flags necessitate a sharp advance or decline on strong volume. These movements can involve GAPS and are based on solid volume. As this is broadly the first leg of an important ascent or descent it is merely a pause. 2. Flagpole: The flagpole is the distance between the first resistance and the support break until the high or low of the flag. The intense advance or decline that forms the flagpole will generally break a trend line or support or else a resistance level. A line increasing up to the high of the flag creates the flagpole. 3. Flag: the flag is described by the little rectangle pattern that declines towards the most recent trend. If the previous move was up then the flag would face down. If the move was down the flag would face up. As the flags are regularly short in time, they commonly have reaction highs and lows. The share price should be contained between two parallel trend lines. 4. Duration: Flags are simply short term patterns and they broadly last about 1 to 12 weeks. 5. Break: with a bearish flag, a break of the hold level indicates that the former falls have recommenced. 6. Volume: Volume must generally be solid during an advance or descent in which it forms a flagpole. The strong volume substantiates its position for a sharp and reactive move that forms the flagpole. The growth in volume at the support level provides the confidence in the formation and the chances of the follow on. 7. Targets: the flagpole length can be determined by the support or resistance break of the flag to assess the advance or the decline.

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