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The Bear Flag Trading Strategy Guide

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Here’s the thing:

If you study most trading textbooks, you’ll learn the Bear Flag is a bearish chart pattern.

And what would most new traders do?

You identify a Bear Flag Pattern and go short immediately.

Then the next thing you know…

The market reverses higher and whips you out of your trade.

And then you wonder:

“Wtf is wrong? I thought it’s supposed to be an EASY pattern to trade.”

Well, that’s because you’re making this big mistake.

But don’t worry.

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

You’ll learn:

Ready?

Then let’s get started…

Bear Flag definition: What is it and how does it work?

A Bear Flag is a bearish chart pattern that signals the market is likely to head lower (and the opposite is called a Bull Flag).

You’ll see:

  1. A strong momentum move lower with large range candles
  2. A weak pullback with small range candles

Here’s how it looks like…


Let me explain…

1. A strong momentum move lower with large range candles

This means the sellers are in control with little-to-no buying pressure.

That’s why the range of the candles is large as the sellers could easily push the price lower.

2. A weak pullback with small range candles

There’s some buying pressure pushing the price higher and it’s likely from traders taking profit on their short positions.

If nothing changes, the market is likely to continue lower.

Now, you’re probably thinking:

“Let me find some Bear Flag patterns to short and make some easy profits!”

Well, not so fast.

Here’s why…

Don’t make this BIG mistake when you’re trading the Bear Flag

Here’s the thing:

Not all Bear Flag patterns are created equal.

You might see two identical Bear Flag but, one is worth trading, and the other you want to avoid at all cost.

Why?

Because the location of the Bear Flag matters, a lot.

I’ll explain…

When the market is in a downtrend, there’s an ebb and flow to it.

It makes a move lower, does a pullback, and then makes a new low.

Think of it like a rubber band.

It will “stretch” so far before moving back towards the mean.

So, what has it got to do with trading the Bear Flag?

Simple.

When the market is “overstretch” (or far from the Moving Average), you don’t want to short the Bear Flag pattern because the price is likely to reverse higher.

Here’s an example:


Does it make sense?

Great!

Moving on…

So, when should you trade the Bear Flag pattern?

Based on my experience, these are the 2 best times to trade the Bear Flag…

  1. The price is near the Moving Average
  2. The first pullback after a break of Support

I’ll explain…

The price is near the Moving Average (MA)

As mentioned earlier…

You don’t want to short the Bear Flag when the price is far from the Moving Average because the price is likely to reverse higher.

Instead, wait for the price to retrace towards the Moving Average (like the 20MA) and then look for short opportunities.

Here’s an example:


Next…

The first Bear Flag after a break of Support

Now:

When Support breaks, many traders will “chase” the market lower hoping to catch a piece of the move.

But that’s a bad idea.

And here’s why…

  • You have a poor risk to reward
  • You have a low probability trade
  • You have a high risk of getting stopped out

So, what should you do?

You wait for a Bear Flag to form (after the breakdown of Support).

Here’s what I mean…


By waiting for a Bear Flag…

Now at this point:

You’ve learned WHEN to trade the Bear Flag.

So in the next section, you’ll discover HOW to time your entries with precision.

Read on…

How to time your entries (with precision) when trading the Bear Flag

Here are 2 techniques you can use:

  1. Short the break of the swing low
  2. Short the Break of the Trendline

Let me explain…

Short the break of the swing low

Here’s how it works…

If the price forms a Bear Flag, then you can short the break of the swing low.

Here’s an example:


Short the break of trendline

Alternatively…

You can short the break of the trendline.

Here’s what I mean…


Now you might be wondering:

“So where do I set my stop loss?”

Well, you can set it 1 ATR above the high of the Bear Flag pattern.

Because if the price reaches that level, it invalidates the Bear Flag pattern and there’s no reason to stay in the trade.

If you want to learn more, go watch this training below…

Bear Flag: How to maximize your profits and ride enormous trends

Here’s what I’ve noticed…

Often when you short the Bear Flag, the price is usually below the 20MA.

This means you can trail your stop loss with the 20MA and ride the move lower.

An example:


Pro Tip:

If you want to ride the medium-term trend, you can trail your stop loss with the 50MA.

If you want to ride the long-term trend, you can trail your stop loss with the 200MA.

Now…

If you don’t want to ride a trend and just want to capture “one swing”, then you can trail your stop loss using the previous candle high.

This means you’ll exit your trade when the price closes above the previous candle high.

Here’s what I mean…

Now you might be thinking:

“So which method is better?”

Well, there’s no best method.

It depends on you — your goals and what you want from trading.

Once you figured it out, then you can find an approach that suits you best.

A Bear Flag Trading Strategy (a template you can use)

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

  1. What’s the market condition?
  2. What’s the entry trigger?
  3. Where will you set your stop loss?
  4. How will you exit your winners?

And if you realized, these are stuff you’ve just learned earlier.

So, let’s write it out in a form of a trading strategy (that you can refer to).

Here goes…

If the price breaks below Support, then wait for a Bear Flag to form.

If a Bear Flag is formed, then short the break of the swing low and set your stop loss 1 ATR above the swing high.

If the price moves in your favor, then trail your stop loss with the 20MA.

Here are a few examples…

PLATINUM Daily:


GOLD Daily:


NZD/JPY Daily:


Pro Tip:

You can “adjust” the trading strategy to your own needs (like having a fixed target profit, trailing with different MA, etc.).

And whatever the case is, you must do your own testing and not just “blindly” copy what’s been shared.

Conclusion

So, here’s what you’ve learned today:

  • The Bear Flag Pattern is a bearish trend continuation pattern
  • Don’t trade the Bear Flag when the price is far from the Moving Average
  • The best times to trade the Bear Flag is when the price is near the Moving Average or the first pullback after a break of Support
  • You can enter a Bear Flag on the break of the swing low or a trendline
  • A Bear Flag Trading Strategy (a template you can use)

Now, here’s a question for you…

How do you trade the Bear Flag pattern?

Leave a comment below and share your thoughts with me.





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