Successful Trading Chart Patterns – Part 6 of 7

continuation of downtrend continuation pattern

17. Bear Flag – Downtrend

A bear flag in a downtrend is usually bearish. Bear flag patterns have two important elements – 1. a near-vertical, short-term price decrease with high volume, and 2. a lower volume consolidation of profit-taking as the market takes a breather from the recent dramatic decrease. Be certain that the bear flag is fairly brief; otherwise the consolidation may stifle the on-going downtrend. Most bear flags occur during the middle of a larger move downward.

18. Bear Pennant – Downtrend

Close to the bear flag, bearish pennants involve two important elements – 1. a near vertical, high volume short-term price drop, or flag pole, and 2. a symmetrical, lower-volume triangle-shaped consolidation. This consolidation, with price maneuvering toward a lone equilibrium, has a similar price action and end implications to a symmetrical triangle. Much like the bear flag, these consolidations are temporary and usually occur within the middle of a more substantial downward move. As soon as the breakout occurs, be conscious of a retest of the pennant’s bottom resistance line. If that fails and the cost turns downward, the organization is complete. If the test succeeds and the price comes back up to the consolidation range, the formation is no longer valid.

19. Rectangle – Downtrend

Rectangles may be continuation or reversal patterns, dependent on the strength of the trend. If the trend is strong, a rectangle can signal a profit-taking area, which allows the need to build and the trend to regroup. In a weak trending or flat market, rectangles can likewise represent a reversal pattern, similar to a triple bottom. Rectangles generally keep well-defined horizontal lines and pricing is thought of as balanced among traders. Once the amount breaks out, be alert to a retest of the prior support line (now resistance).

 

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