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Bear Flag Pattern Failure

Patrick Stockdale
Written by Patrick Stockdale | June 1, 2022

What Is A Bear Flag Pattern Failure?

In technical analysis, a bear flag pattern failure, also known as a "failed bear flag pattern", is when the price chart of a market forms a bear flag pattern, the price breaks down and moves slightly lower below the support level of the bear flag but fails to continue decreasing in price and instead reverses and moves higher in a bullish direction.

A bear flag pattern is considered a failed bear flag pattern when the price reverses from below the breakdown level to above the swing high price of the bear flag resistance level.

Failed Bear Flag Pattern Components

Failed bear flag pattern components

In order to identify a bear flag pattern failure, there will need to be certain components on the price chart of a market.

The components of a failed bear flag pattern are:

  • A bear flag pattern: There will need to be a bearish flag pattern visible on the price chart with a clear flagpole and two parallel resistance and support levels.
  • A price movement below the support level: The price of the market will need to break down from the pattern support level. This is where traders enter short trade positions.
  • Declining volume on the breakdown (optional): Ideally, there should be little to no selling volume as the price breaks down from the bear flag. This is a hint that traders do not have conviction that the market will go lower. This is an optional component.
  • A bullish price reversal: The price should fail to continue lower after the breakdown of the pattern. Instead, the price reverses from below the breakdown level and moves back up and trends higher to above the swing high price of the resistance level of the pattern.

Once these components are visible, the pattern is considered a bear flag failure as it trapped sellers and stopped them out.

Bear Flag Pattern Failure Examples

A bear flag pattern can fail in any market where it forms. Below are visual examples of failed bear flag chart patterns on the price charts of various markets.

Example Of A Failed Bear Flag Chart Pattern In The Stock Market

Failed bear flag in the stock market

On the above price chart of Unity Software stock, there is an example of a failed bear flag pattern.

The price of Unity Software stock initially breaks down from the bear flag slightly. The price then reverses from bearish to bullish and trends higher.

This is an example of a bear flag failure in the stock market.

‍Example Of A Failed Bear Flag Pattern In Forex

Failed bear flag in the forex market

On the daily price chart of USD/JPY currency pair, there is an example of a bear flag pattern failure.

The price of the currency pair breaks down initially but fails to reach the bear flag price target.

The price then reverses and switches from bearish price action to bullish price action.

Example Of A Failed Bear Flag Pattern On A Shorter Timeframe Price Chart

Failed bear flag on shorter timeframe chart

On the 5-minute price chart of Corn futures, there is an example of a bear flag pattern failure.

The price of corn futures forms a bear flag pattern. The price initially breaks down from the pattern but it fails to continue moving lower and instead it reverses from a downtrend to an uptrend.

Bear Flag Pattern Failure Causes

There are a number of reasons a bear flag pattern can fail. The causes of failed bear flag patterns include:

  • Lack of selling volume on the break down: If there is a lack of selling pressure on the break down from the pattern, this can be an indication that there is no conviction from traders that the bearish trend will continue and means one big buyer can reverse the bear flag and cause it to fail.
  • Positive economic or political news: Positive economic or political news can cause the price of a market to reverse from bearish to bullish and cause a bear flag to fail.
  • A major support level below the bear flag pattern: A major support level below the bear flag pattern can cause the price to struggle to move below this major support level. This can result in the price bouncing from bearish price action to bullish price action and cause the bear flag pattern to fail.

How To Find Failed Bear Flag Chart Patterns

The methods for finding a failed bear flag chart pattern are:

  • Use a bear flag scanner: Use a bear flag chart pattern scanner to scan for bear flags. Once found, a trader can then wait to see will the pattern fail after it breaks down.
  • Manually browse through price charts: A trader can manually browse through price charts to find bear flags in the market. Once found, a trader can then wait to see will the pattern fail to continue trending lower in price.

How To Trade A Bear Flag Pattern Failure

Failed bear flag pattern trade example

Some traders prefer to trade the bear flag pattern failure rather than trading a traditional bear flag pattern.

To trade a failed bear flag pattern:

  • Wait for the price chart to form a bear flag pattern
  • Wait for the price to break down from the pattern support level and move slightly lower
  • Once the price has broken down slightly from the pattern, wait for it to reverse and move back above the breakdown price level
  • Enter a buy position once the price breaks back above the breakdown level of the bear flag pattern
  • Put a stop-loss at the previous swing low price that formed after the breakdown
  • Set price target by taking the distance of the flagpole of the bear flag pattern and adding that distance to the buy entry price

Frequently Asked Questions About A Bear Flag Pattern Failure

Below are frequently asked questions about failed bear flag chart patterns.

Is A Failed Bear Flag Bullish Or Bearish?

A failed bear flag is a bullish signal. It indicates that the price of a market failed to continue in a bearish trend from a breakdown of a bearish flag. Instead, the price of a market reversed and trended higher in a bullish direction.

Can A Trader Trade A Failed Bear Flag Pattern?

Yes, traders can use a failed bear flag chart pattern as a bullish signal to enter into a buy trade.

When a bear flag pattern fails, it traps short sellers anticipating that the market will move lower in price. As a result, these traders will need to cover their trading positions for a loss which can push the prices up even higher as they cover their short positions.

This presents an opportunity for a trader to enter a buy trade when the bear flag pattern fails.

Is It Hard To Trade A Failed Bear Flag Pattern?

A failed bear flag pattern is relatively easy to trade as there are only a few simple steps to learn.

A trader should simply wait for the pattern to form, the price to break down below the support level and then the price should reverse higher with a buy entry at the previous support level.

How Risky Is It To Trade A Failed Bear Flag?

Trading a failed bear flag pattern carries the same risks as trading any chart pattern. The level of risk a trader will face depends on the position sizing used to trade the pattern and whether a stop-loss is used.

A trader with proper risk management will typically risk at most 1% of their trading capital when trading a failed bear flag pattern.