The Trend

Technical Analysis 101: The Bull v. Bear Flag Patterns

Trying to figure out why traders are selling or buying is tough enough. 

But once you begin to understand charting, you’re literally looking at a consolidated view of the very forces of supply and demand – the two key forces that drive stocks.

We’re already discussed some of the most powerful and most used patterns, but there are – quite literally – more than a hundred or so more.  However, we’re only interested in ones with a history of working well including the two we’ll share with you now.

The Bull and Bear Flag Formations

Lightspeed Charts courtesy of Lightspeed Trading

A flag pattern can show up in the middle of a trend and often give you another opportunity to buy.  Typically, a flag will show up when the price of a stock moves up (bull) or down (bear) in a strong trend, but then pauses.

The price of the stock will then trade sideways in a narrow, sometimes sloping range.  Drawn trend lines will represent support and resistance, as the stock is narrowing will form a rectangular shape – much with the look of a flag.

Eventually, the price will break out of the flag pattern and continue the original paused trend. 

As with most patterns, there is a bullish and bearish version. 

With a bullish flag, you’ll notice the flag sloped down slightly after an incredible move higher. 

With a bearish flag, you’ll notice the flag sloped up after an incredible move lower.

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The Pennant Formation

Lightspeed Charts courtesy of Lightspeed Trading

The pennant formation will take the shape of a symmetrical triangle, where support and resistance lines begin to converge upon one another.  It’s typically a continuation pattern much like the flag formation that follows a large movement in a stock, followed by a brief period of consolidation, creating the pennant look, followed by a breakout movement in the same direction as the previous move.