Choosing which cryptocurrency to trade is just a tiny step in a long list of actions to become a seasoned and an established crypto trader. While most traders have had to come up with their unique trading strategies, all of them have, at some point in time has studied the technical analysis of the crypto they planned to trade. One spoiler is that no matter how good you claim to be in reading the technical analysis of a digital asset, there are still significant challenges to overcome. In this article, we will be looking into Crypto trading bear flags and how we can navigate it to increase our earnings in the crypto market.
What is a Bear Flag
A Bear flag is defined as a technical pattern categorized by a continuous movement in the downward trend by a digital asset. To capture a bear flag, the digital asset in question needs to make a strong decline move before consolidating in a near upward region followed by another strong decline. With the strong downward movement known as the Pole, the consolidation region is regarded as the Flag.
In layman terms, a bear flag is briefly described as any consolidation in the middle of two strong downward movements on the trend line. A bearish flag is solely characterized by the selling pressure in the market at a specific period. It shows that even though the selling pressure is very much around in the market, traders are still backing the asset to make an upward push.
Identifying a Bear Flag Pattern
To identify the Bear flag, a trader must always lookout for the two integral elements that make up the Flag and Pole. While those are essential elements, the volume indicator, and the breakout are also important elements one should look out for on the chart.
To pick out the pattern, one must first find the pole defined above. The pole is determined by the longest downward price decline on the chart. After this point, the Flag would enter the consolidation channel in which the price would look to make an upward movement.
After the consolidation period of the trendline, there are potentially two outcomes; an upward trajectory or a downward trajectory. If the price moves on upward after the consolidation, the flag pattern will not be visible as the previous downtrend would be making a reverse. The trend line needs to make a decline so that the flag pattern will be visible, showing a break below the support level of the Flag.
Trading strategy in a bear flag
When a bear flag occurs, most traders in the market use the period to create their sell orders. Traders also use the flag pattern to measure their profits since the pole’s distance can be used to know if the price may eventually go downward. Compared to most chart formations, it is easy to read the bear flag pattern when making trades. Most traders use the dynamics in the bear flag pattern to develop ways to boost their profits in the bear market.
To do this, the majority of the traders wait for a close under the Flag’s support before choosing to go short on the next candle. Traders also wait for the price to move close to the moving average before they trade the bear flag, as it could make a reverse higher before it gets to the moving average. Instead, traders wait for the price to make a stop at the 20 Moving Average before they look for opportunities to go short.