Testing a bear-flag target after the pause is confirmed

What the archive recorded

The archive studied 100 bear flag, pennant, or similar short consolidations from January 2004 through June 2005. Each case required a steep, quick decline into the pattern. Average formation length excluding the pole was eight trading days, with a maximum of 15 trading days, or about three calendar weeks.

How the pause was described

In this workflow, a flag and pennant was a short consolidation after a steep drop, with a slanted rectangle or converging triangle that paused the decline. Bear flags were described as higher highs and higher lows between parallel lines that slope up against the prevailing decline. Pennants were described as short symmetrical triangles with converging upper and lower boundaries.

Pattern identification was treated as subjective. Non-textbook shapes were accepted if the setup was a pause after a sharp move with substantial volume contraction.

Confirming the decline has resumed

A breakout was a close through the lower boundary of that pause, used to confirm the decline has resumed. Recorded observations included pole extremes, the last point before a break of the lower trendline, the first post-flag short-term low, volume trend, market conditions, and historical volatility.

Scaling the next decline

Historical volatility was computed from the standard deviation of one-day log-close changes over a 130-observation window. It was recent realized price variability used to scale how far the next decline is likely to travel. A later measuring formula, derived from those observations, was presented as a more accurate price-objective estimate than earlier textbook-style projections, while remaining only an estimate.