Crypto Trading 101: Bull and Bear Flags

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Crypto Trading 101: Bull and Bear Flags

Every crypto trader always has one key aim, to predict the future price with as much accuracy as possible. A correct prediction as a massive incentive for one will either make huge returns or avoid biting losses. A wrong prediction is, in turn, very taxing and costly in terms of lost investments. To be a prolific price predictor, the art of mastering trends should become one’s closest ally, just as dogs are man’s best friend. It’s easier said than done. Identifying a trend as it begins is quite a complex process. Differentiating a market swing from a bull run to bearish conditions from a slight pull-back (bull flag) needs more insights. Read on to understand more.

What are Bull and Bear Flags

A bullish flag formation refers to a slight pause in the upward trend of a specific crypto price. The continuation of the bull run follows the break. The term a flag relates to the graph’s resemblance of a flag with a pole. The depiction of a bull flag starts with a solid previous vertical upward trend, the flag pole. A slight zigzag ensues on a certain level forming a horizontal or slightly downward angling table, the flag.

On the other hand, a bearish flag shows the opposite scenario, an inverted flag of sorts. It starts with a sharp vertical drop, the pole, and the slight zigzag of price movement, forming a table that may be horizontal or slightly angled upwards.

In both instances, the price movements after the flag table tend to mirror the prevailing conditions before the flag. In essence, prices continue moving upwards sharply after the bull flag or downward sharply after the bear flag.

The Bullish Flag

A bullish flag is considered one of the best continuation patterns in cryptos and stock trading. To better identify one, there are specific parameters one needs to grasp, namely;

Their Cause

It primarily occurs as a result of market consolidation. That is a phase where a general indecisive nature characterizes the markets. During consolidation, the crypto price tends to fluctuate between a well-defined pattern of trading levels. 

A line drawn to join the fluctuation peaks forms the top of the flag table, with a similar line linking the troughs to earmark the bottom of the table. It is worth noting that prices may move above or below the trading pattern after consolidation. A continued upward move points to a bullish flag, while a downward movement shows a swing to bearish market sentiments.

Implications of a Bull Flag’s occurrence

When a bull flag occurs, several points become more apparent. From these points comes the important trade suggestions that could point to more yields gained.

First, it implies that the first investor rallying could run out of steam. That’s because the forces of demand and supply determine the price of crypto. Demand is more than supply in a bull market hence price gains. A flag occurs because supply and demand are currently hovering at parity.

Second, it is the staging point for more investments to sustain the bull run. The brief pause in price gains gives more investors who missed the fast run (as shown by the pole) a chance to commit to investing in crypto and benefit from the run.

Identifying a Bull Flag From a Swing to Bearish Conditions

The primary indicators of whether a price oscillation is a flag or a swing to bearish markets lie within the swing period itself. Their determining factors are primarily demand and supply, which is, in turn, defined by how investors buy into the coin in question.

When more investors pump capital into the project in anticipation of future gains, the resistance point gets broken, and the only way for the price is up. The support gets breached when fewer investors commit, with even more selling to make the gains from the previous price run. The situation changes from a bullish flag to a swing to bearish conditions as prices drop, making buying an ill-advised idea.

The Bearish Flag

The Causes

Similar to the Bullish flag, the causes are a consolidation of the markets and a sign of indecisiveness in market conditions. Prices similarly calculate between a well-defined set of peaks and troughs, the joining of which forms the top of the table for the peaks and the bottom for the troughs.

A continuation of price movements to mirror the pattern of the pole, that is, a downward trend, implies that it was a bearish flag. If prices swing upwards, it will turn out to be a market breaking the bear trend and prices recovering.

Implications

Just as with the bullish flag, forces of demand and supply play a key role hear. Their implications are, however, markedly different.

The first is that prices have become conducive enough for investors to attempt buying the dip. They usually are seasoned traders who might have sold their assets at higher prices and find the current prices low enough to move back in. They could also be investors with diversified portfolios who move assets in from other sources in anticipation of future price gains.

The other reason could be that intrinsic demand for the coin could increase. A major driving force behind it is newbie investors. Their attraction is often other benefits of participating in the project, such as staking rewards or NFTs

Identifying a Bear Flag From a Swing to Bull Market Conditions

The rate at which investors opt to invest in the coin determines whether the fluctuations are a bear flag or a reversal in market conditions. It also lies in the interactions between forces of demand and supply, just like the bull flag.

If demand is insufficient and the support gets breached, it is a bear flag, and it would be wise for one to sell their holdings or hold back on committing more to the project. Investing is very sound if investments drive demand to a point where the resistance gets broken. One will be buying the dip.

Author’s Note

A bull or bear flag is a significant market trend to master. It may strongly contribute to the difference between being a veteran trader and a newbie that grasps in the dark.

The trick is avoiding the false breakout, a situation where the level of support or resistance is insufficient to sustain the momentum of a price movement. To this end, combining the bull and bear flag with other indicators helps make one a better trader. Observing where the candlestick closes outside the flag and the overall MACD line trajectory helps ascertain the breakout further.

What is a Bullish Market?

A bullish market is characterized by high volume, extreme price movement, and strong buying pressure. Stockbroker George Graham coined the term bull market in 1802 in London who said, “Bulls do well when stocks go up”. The phrase then became popular among traders who would refer to any increase in share prices as a “bull”.

What is a Bear Market?

A bear market happens when prices for stocks plunge below a certain level. The term “bear” comes from short selling because bears seek out undervalued stocks and try to drive them down further. When stock prices drop sharply, it becomes difficult for investors to sell shares at current prices, and profits become less attractive. This causes sellers to be forced into buying more shares, causing the price to increase. If you were to invest $100 in a company whose stock was priced at $10 per share, suddenly, the price plunges to $5 per share, then it would be considered a bear market.

What are crypto bull market Indicators?

Crypto bull market indicators include Bitcoin price analysis, technical analysis, volume, volatility, etc. However, most crypto analysts focus only on one aspect, such as trading, while ignoring other aspects like ICOs and blockchain technology. The best way to analyze crypto markets is by looking at all these aspects simultaneously. To do this, we use our proprietary Fintech Bull Market Indicator, which uses advanced machine learning algorithms to capture the underlying factors driving the current trend and predict future movement.