scorecardresearchHere's how to trade the bearish flag pattern in crypto

Here's how to trade the bearish flag pattern in crypto

Updated: 08 Jul 2022, 12:49 PM IST

When trading cryptocurrencies, the majority of continuation patterns that work in the conventional forex market can be applied. Here, we go through how to trade cryptocurrency using bearish flag patterns.

Bear Flag Pattern: How to use it to trade crypto effectively

Bear Flag Pattern: How to use it to trade crypto effectively

A common misconception about cryptocurrency is that it is a complex financial instrument exchanged in the black market. However, cryptocurrency is similar to forex in its most basic form. Although it is not legal tender, it serves as a medium of trade. Consequently, the majority of continuation patterns that are effective in the regular forex market may be utilized while trading cryptocurrency.

Identifying trends and developing trading techniques based on them are necessary for pattern trading. A certain trend in the cryptocurrency market might be represented by certain chart patterns. Beginners may find it difficult to see trends or patterns, especially in a market as volatile as cryptocurrency. These patterns, however, can inform traders of the activities of bulls and bears over a specific time period.

READ MORE: All you need to know: Five bearish candle patterns for trading in the stock markets

What is a bearish flag pattern?

The pole and the flag are the two major components of a bear flag pattern . When the pattern is first formed, there is a price decline led by a significant bearish momentum that lasts until a new support level is achieved. Here, the decline is fairly abrupt. This is what we might refer to as the pattern's pole.

The price briefly enters an upward consolidation channel after reaching the support level. The pattern's flag part is seen here. To maintain the bearish downtrend following the retreat, the price has to drop beneath the support level. The bear flag pattern does not appear if the price trend is upward.

What does a bearish flag pattern tell about the crypto market?

In a bear flag pattern, the flag phase denotes an oversold range. As a result, following a sharp price decline, the market either rests or the price briefly reverses direction to rise upward before continuing to move in line with the prevailing bearish phase.

As soon as the brief corrective period is complete, the traders may begin placing their bets. Traders have the option of going short or placing sell orders whenever the price breaks just below the flag's support line. To prevent making a mistaken move, it is wise to hold off until the decline has been confirmed. The top of the flag is another possible entry point for the traders.

READ MORE: How to disclose cryptocurrency earnings in your income tax filing

Use a stop-loss order if the price is moving in the other direction to reduce possible losses. The stop-loss order is often placed above the flag's resistance line by traders. Most traders base their price estimate on the length of the flag pole. You can gauge how much the price could drop by looking at the distance to the flagpole. Some traders view the flag channel's height as a more realistic profit objective.

The bear flag is regarded as one of the most well-liked price action patterns. However, especially when trading cryptocurrency, it doesn't guarantee that all of the indications it offers will be absolutely correct. Traders are advised to use risk management strategies to reduce possible losses in the event that the price deviates from the pattern's guidelines.

First Published: 08 Jul 2022, 12:49 PM IST