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Bullish Patterns
Symmetrical Triangles
Ascending Triangles
Rectangles
Pennants
Flags
Wedges
Head & Shoulder Bottom
Cup & Handle
Trendlines

Neutral Patterns
Symmetrical Triangles
Rectangles

Bearish Patterns
Symmetrical Triangles
Descending Triangles
Rectangles
Pennants
Flags
Wedges
Head & Shoulder Top
Trendlines

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Flags

Bearish flags are small continuation patterns that represent brief pauses within an already existing downtrend. They appear flat or trade with a slight upward slant and occur in the middle of a large drop or immediately after a stock has broken down from a substantial rally.

The slight short-term uptrend against the overall downtrend is very healthy and has serves two functions.

1) Weak shorts that were hoping to take profits at a lower price get scared and cover their positions. This covering is partially responsible for the short-term upward slant. Once enough have covered, the underneath support in essence is lessened.

2) The slight uptrend also indicates that the lay public is being “suckered into” the stock as they buy what they believe to be a cheap stock.

When the buying from the lay public dries up and the weak shorts finish covering, support disappears, and the stock continues it downward movement.

Whether a bearish flag pattern appears during a large fall or after breaking down from a distribution period, the expected price movement upon breakout is approximately equal to the preceding move into the flag.




IDPH was rolling along when it formed this bearish flag pattern. Notice how volume ramped up into the pattern and then fell off within the pattern. It then picked up again with support was taken out. This is the type of volume action you want to see to confirm the price moves.



KLIC is an example of a stock that formed a bearish flag pattern after having broken a longer term support line. You can see how volume dried up within the pattern and then got huge during and after the breakdown.



PCSA is another example of a stock that formed a bearish flag immediately after breaking down from a larger pattern. Volume was strong on the break down and then surge in the following couple days.



HGSI is very similar to the IDPH pattern above. The stock was gently rolling along in a downtrend when if formed a bearish flag pattern. Notice how volume was strong into the pattern and then fell off within the pattern. That's what you want to look for when considering playing a bearish flag formation.


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