Study Guides
Study Guide: Bear Flags

Chris' favorite patterns are bear flags and pennants.

Ideally you will want to see the flag pattern point slightly upward following the “pole”.

Bear flag/pennant patterns seem to resolve themselves much more quickly.

Volume is not as important with bear flags as opposed to bull flags.

 

FLAGS ARE A RESULT IN A MASSIVE CHANGE IN PSYCHOLOGY:

A big surge downward in price usually involves an oversold condition.

The flag forms because of an equilibrium between buyers happy to take a profit and short sellers. Once the price breaks to the downside long buyers may feel they have to sell, people jump out, not wanting to miss the move, and algorithms that look for these patterns jump in.

 

WHY DO FLAGS FAIL? :

The 3 biggest failures of flags occur when…

- The flag is opposite the direction of the primary trend.

- The flag has “nowhere to go”. Meaning it is already near important support or resistance levels. As seen above, flags work best when there is no resistance below the current flag pattern.

- Stocks key off other factors and those factors are failing. For example the way CXO's price suffers when /CL is in a downtrend.