By Nathan Ferguson
The dawn of the 21st century is the era of technological innovation. The global wave of innovation started with the invention of the steam engine. The steam engine reduced the time gap for trade and ushered in an era of fast transportation. The next milestone in the technological era was the invention of the assembly line.
The assembly line revolutionized the concept of consumption. The world began to move towards the concept of mass production. As a result, consumerism became the new normal. The world witnessed an exponential rise in mass consumption and global trade. The increased global trade paved the way for international banking.
The international banking system was the byproduct of the industrial revolution. The banks provided much-needed liquidity to the international market. This ensured the success of global trade and the global markets flourished as a result of enhanced international trade. As international trade grew, the influence of the banks on international trade also grew. The banking industry took over international finance.
Due to the vast interest of international banks in international finance, the banks sought to look after the interest of the capitalist class rather than the common class. This resulted in the economic meltdown of 2008. The economic crisis of 2008 proved that the international banking system needs to be changed.
The economic crunch exposed the weak foundations of the global financial system. Therefore, the need for a new financial system was strongly felt.
As a result, cryptocurrencies were introduced. These currencies were based on state-of-the-art technology called a blockchain. Blockchain technology is a revolutionary technology that focuses on the decentralization of currencies. This is a novel idea in the international finance industry because it eliminates the use of banks.
With cryptocurrencies, one can trade freely with others without depending upon any third party or bank. The reason for this phenomenon is the underlying technology upon which the cryptocurrencies are based.
Blockchain technology is the base of cryptocurrencies. All cryptocurrencies are based on blockchain technology. There are two main advantages of this technology that distinguish it from the prevalent financial technology. The first one is that blockchain technology offers decentralized transactions.
This means that no institution could have any influence on the financial system. The transactions are verified by the local users in the form of blocks. These blocks then join together to form a chain of blocks
The second advantage of cryptocurrencies is that they don’t require a third party for transferring funds between the transaction parties. Usually, when the funds are transferred between two parties, the banks are involved. We make daily life transactions with the help of our banks.
The banks hold our amount and then transfer it to the other party. This gives banks an immense advantage over the transactions and this phenomenon is even prevalent at the international level.
Since cryptocurrencies are decentralized, therefore, they don’t require any assistance from the third-party or banks. This means that when you trade cryptocurrencies, there are no banks involved.
All transactions are purely bilateral and decentralized. All the data of international transactions are recorded on the blockchain and verified in a decentralized manner. This eliminates the need for banks in international finance. In this way, cryptocurrencies pose a grave danger to the international banking system because these currencies can be traded without involving any sort of bank.
Cryptocurrencies are the currencies of the future. According to international economists, cryptocurrencies will replace the current currencies in a matter of decades. This means that the value of cryptocurrencies will increase by many folds in the future. This also hints at the possibility that the ones who are investing in these currencies now, will have a healthy return on investment.
Crypto trading is also gaining increasing attraction these days. Traders from all over the world are investing in the trading business. This is because the trading business is highly beneficial and profitable. Cryptocurrencies are extremely volatile. Their prices vary within seconds. This means that holding such currencies is also a risky business.
The prices of cryptocurrencies vary with each passing second. This presents a challenge for the investors and opportunities as well. The volatile nature of cryptocurrencies is beneficial for some traders, on the other hand, some traders face heavy losses due to it. It is because experienced traders employ certain techniques that enable them to earn profit from the market. Whereas, the amateurs end up losing their portfolios to the crypto volatility.
Various tools and indicators enable traders to perform perfect trades and earn profit at the right time. These tools are developed by professional traders and they enable new traders to have a thorough understanding of the crypto trading world. The art of using these tools to make the perfect trade is called technical analysis.
Technical Analysis
Technical analysis is a term that refers to the analysis performed by professional traders which helps them to perform the right trade at the right time. Technical analysis is an extremely useful technique and it extinguishes the professional traders from the ameture ones.
Technical analysis enables professional traders to gather pertinent information about the market, study the market trends, go through the financial data, understand the dynamics of the currency, and have a detailed overview of the underlying technological advancement in the network to make an informed decision.
The greatest benefit of the technical analysis is that it reduces the risk factor involved in crypto trading. As discussed earlier, crypto trading is an extremely volatile business. The prices of the currencies rise or drop in a matter of seconds. Various little price fluctuations cause an eruption in the market and the price suddenly increases or drops.
Technical analysis is beneficial in these types of situations because they enable traders to understand the trends of the crypto market. This prevents the traders from making bad trades and helps them to avoid any potential loss of their money.
This technical analysis is sometimes referred to as charting. This method is often adopted by traders worldwide to make profitable trades. There is another method called efficient market hypothesis (EMH) or random walk theory. This theory suggests that the current value of the asset is the measure of its company’s value.
Therefore, one cannot predict the price of the currency in the future because there is no certain way of knowing the value of the company in the future. This means that one cannot make profits using only this information. This theory is generally discarded by the charting technique. Various international traders disregard this theory as well.
On the other hand, the technical analysis considers the price and volume behavior of the market. The charting usually predicts the price of the currency based on these two variables. Various patterns are studied in the charting.
These patterns have different meanings and traders identify these patterns and make decisions accordingly. Some patterns mean that the price will increase in the future, and some mean that the price will decrease.
On the other hand, some mean that the price will increase exponentially and vice versa. However, these are only analyses and although their prediction is right most of the time, the final price is independent of such analysis. This means that this analysis only provides the information needed to make decisions. The actual price of the currency may deviate from the analysis.
One such pattern is called the bull flag pattern. It is a recognized pattern and it means that the price of the currency is about to increase. Here, you will get complete information on the bull flag pattern. You will get in-depth knowledge of how to use this flag, how to spot it, and most importantly, the difference between the bear flag chart and a bull flag chart.
What is a bull flag chart pattern?
A bull flag pattern is a type of technical chart pattern. It resembles a parallelogram. It consists of a parallelogram-shaped flag. This flag is bent on either side, usually, it represents an increase in the price of the currency.
Another indication of this chart is that if this shape is observed then the price usually fluctuates and then suddenly, it either falls or jumps exponentially. Therefore, this chart is extremely important to understand and recognize because it either represents a huge opportunity or it may cause enormous losses for the traders.
A bull flag pattern can be recognized as a flag of consolidation. This flag can be horizontal or sloping downwards. Most of the time it is followed by a substantial increase in the price of the currency. This means that the flag represents a breakout or sudden increase in the price. The traders use this technique to exploit the potential increase in the price of the market to earn maximum profit.
When the market is volatile, professional traders rely heavily upon such indicators to catch the market potential. This means that the primary goal of the bull flag pattern is to indicate the increase in the price of the market. This pattern is usually liked by professional traders because if they are successful in determining the correct bull flag pattern, then they can gain maximum profit from their investments.
The period of the bull flag pattern is usually short. This pattern is short-lived. It may last for one week and may extend up to six weeks. This means that when this type of pattern occurs, then the traders have less time to exploit the potential and gain their desired profits. This flag helps the traders to identify the entry and exit points for their trades that cause maximum profit.
Therefore, if this pattern is spotted correctly, then this means that it is the continuation of the already existing bull trend. This also indicates that the overall price of the currency will increase when the pattern ends. This pattern can be thought of as a golden opportunity for the traders because they can earn maximum value from the market if they can identify the pattern correctly.
How to spot a bull flag pattern?
The bull flag pattern is easy to spot. It resembles a flag hoisted on a pole. Moreover, it represents an upswing, this is the reason that this pattern is referred to as a bullish flag. Traditionally, this flag has three main features that distinguish it from other patterns. These features are as follows:
- When the volume of the currency increases, it forms a pole representing the price increase.
- Similarly, when the volume lowers, the currency consolidates itself which represents a flag.
- To break this trend, the currency of the prince suddenly increases, and the formation of flags. This is called continuation. Traders usually make profits by following this trend.
These features help the traders to get to know this pattern but the identification of the pattern is a different story altogether. A bull flag pattern helps traders to identify the locations where they can enter or exit the market. This pattern also allows them to correct their traders before the point where the trend resumes.
Moreover, the bull flag pattern also requires the previous momentum. This means that before the bullish runs, there must be various other consecutive bullish bars as well. This helps the traders to identify the bull flag pattern from other patterns.
Later on, the consolidation must be used as a remedial action. This means that the consolidation gives time to the traders to make the correct decision and to decide if he wants to continue with the trade or not. The pattern forms certain triangles which represent certain converging trends, these trends usually mark the subsequent highs and lows.
The optimal entry point in the bull flag pattern is its third stage. This stage is called the break of the flag. The previous swings represent initial profit for the traders but this stage is the perfect opportunity for the traders to enter the market because this is the point where the price usually jumps and it seems to be the perfect opportunity for the traders to make a profit from their trades.
How to trade bull flag pattern
In the bull flag pattern, the traders usually enter the third stage which is at the end of the flag. It is because it represents the downward trend. Moreover, the traders keep an eye out for the volume indicator. This indicator verifies the bull flag signal. The traders use this signal to predict whether the volume of the currency will rise or fall. If the volume rises, so does the price, and vice versa.
Sometimes, traders have to be careful of the take-profit threshold. This marks the highest price of the currency at a certain run. If the traders sell their currency at this point then it means that they have gained maximum profit and if they fail to do so then it means that they have missed a great opportunity for profit.
Although the bull flag pattern provides sufficient data about the trade and enables the traders to make informed decisions, the market may vary from the expected results. Therefore, there is always risk associated with crypto trading.
Bear vs. Bull Flag Pattern
A bull flag pattern greatly resembles a bear flag pattern. The only exception is that usually at the end of the bear flag pattern, a huge price drop in the value of the currency is seen. The bull flag pattern represents the upward direction of the currency whereas, the bear flag pattern represents a downward direction of the currency.
A bearish flag pattern is also known as a flagpole. It is a downward trend which is followed by a lull in the consolidation zone. The price of the currency suddenly drops after this pattern appears.
There is one more difference between these two patterns. In the bull flag pattern, the demand is greater than the supply and as a result the price of the currency increases. On the other hand, in the bear flag pattern, the supply is greater than the demand. This means that there is an excess currency in the market and as a result, the price decreases.
Both patterns are useful for traders. They enable the traders to identify the entry and exit points. The bull flag usually marks the entry point, whereas the bear flag usually marks the exit point.
Final Words: Benefits and risks of a bull flag pattern
Like two sides of a coin, there are certain benefits and risks associated with the bull flag pattern. The bull flag pattern offers a transparent price at which traders are free to place long-term trades. Moreover, it gives them time to pull out of the trade via the stop-loss order technique. Furthermore, it is easy to spot and steps for spotting it are already mentioned above.
On the other hand, there are certain risks involved. The pattern provides the necessary information to make a trade but it can’t predict market volatility with 100% accuracy. The market may boom or it may collapse, depending upon various other factors.
It means that no trade tool or technique ensures profit, there is always some risk involved with crypto trading. This is because the crypto market is extremely volatile and difficult to predict. These tools help us to study the market trend but the actual price may vary from the trend.