Bull Flag vs Bear Flag Pattern (Comparison): Explaining the Difference
If you’re new to trading stocks or options, you will often hear the terms “Bull Flag” and “Bear Flag” being tossed around. And that may leave you wondering what the hell anyone is talking about.
Use the quick links to jump straight to learn more about each flag pattern.
- What is a Bull Flag?
- How to Trade a Bull Flag
- Do Bull Flags Fail?
- The Difference Between Bull Flag and Bullish Pennant
- What is a Bear Flag?
- How to Trade a Bear Flag
- Do Bear Flags Fail?
- The Difference Between Bear Flag and Bearish Pennant
In this article we discuss the difference between bull flag vs bear flag, how to identify them, and how to trade them so you can have more consistent and profitable trades.
If you’re ready to learn more about bull flags and bear flags, let’s dive into this!
What is a Bull Flag?
A Bull Flag is a bullish continuation signal to the upside. It gets formed after a steep or near vertical rise in price action, and it consists of two parallel trend lines that form a rectangular flag shape.
During the pullback, it creates new lower highs, and lower lows in price action, thus creating a trend lines also known as “The Flag“. The Flag can be pointing in horizontal direction or a slightly downward.
The vertical or steep uptrend is known as “The Flagpole“.
The Bull Flag is confirmed when the price rises above the upper flag trend line of the formation.
How to Trade a Bull Flag
A bull flag is a bullish chart pattern, so you’ll be looking for clear confirmation that price action breaks the flag pattern to the upside for continuation.
You do not want to start a trade inside the flag channel because there is a lot of market indecisiveness within that range, and your option contract premium may lose value due to theta–or the bull flag pattern may invalidate.
Do Bull Flags Fail?
Yes, Bull flag patterns do fail. The image above, is an example of a bull flag setup failing to continue to the upside.
Another example is of a bull flag pattern failing is when it breaks the flag to the upside, only to reverse the trend on the next candlestick.
The Difference Between Bull Flag and Bullish Pennant
Even though a Bull Flag and Bullish Pennant are similar in that they both are continuation patterns to the upside, and they patterns can be formed horizontally.
The main differences between the Bull Flag and the Bullish Pennant is that the Bullish Pennant is a triangle shape rather than a rectangular shape, Bullish Pennant are typically shorter in duration, and usually only fly horizontally.
What is a Bear Flag?
A Bear Flag is a bearish continuation signal to the downside. It gets formed after a steep or near vertical decline in price action, and it consists of two parallel trend lines that form a rectangular flag shape.
During the pullback, it creates new higher highs, and lower lows in price action, thus creating a trend lines also known as “The Flag“. The Flag can be pointing in horizontal direction or a slightly upward.
The vertical or steep downtrend price is known as “The Flagpole“.
The Bear Flag is confirmed when the price declines below the bottom flag trend line of the formation.
How to Trade a Bear Flag
A bear flag is a bearish chart pattern, so you’ll be looking for clear confirmation that price action breaks the flag pattern to the downside for continuation.
You do not want to start a trade inside the flag channel because there is a lot of market indecisiveness within that range, and your option contract premium may lose value due to theta–or the bear flag pattern may invalidate.
Do Bear Flags Fail?
Yes, Bear flag patterns do fail. The image above, is an example of a bear flag setup failing to continue to the downside.
Another example is of a bear flag pattern failing is when it breaks the flag to the downside, only to reverse the trend on the next candlestick.
The Difference Between Bear Flag and Bearish Pennant
Even though a Bear Flag and Bearish Pennant are similar in that they both are continuation patterns to the downside, and they patterns can be formed horizontally.
The main differences between the Bear Flag and the Bearish Pennant is that the Bearish Pennant is a triangle shape rather than a rectangular shape, Bearish Pennant are typically shorter in duration, and usually only fly horizontally.
