Bearish Breakaway Candlestick Pattern: One of the most frequently used features of technical analysis is candlestick patterns. It is a pattern that displays the high and low and the daily opening and closing prices for a given period. The body and the two shadows make up the three parts of the candlestick.
Any beginner must understand how to read single candlesticks before diving into the specifics of candlestick patterns. Moreover, even though different candlestick patterns indicate the price and trend movement, the breakaway candlestick pattern is the most significant. Breakaway is a term that refers to a trend reversal. We will discuss the Bearish Breakaway Candlestick Pattern in this article.
Bearish Breakaway Candlestick Pattern
The bearish breakaway candlestick pattern occurs during an uptrend and signals the impending market trend reversal. It has five bars, the first of which is always bullish, and the final is bearish. Additionally, it is the reversal of the bullish breakaway.
A small gap emerged between the first two candlesticks, indicating the bullish momentum. It is crucial to accurately classify the middle candlesticks and their placements concerning the outer bars since it is a complicated pattern. The middle candlesticks, which will be rising, can be bullish or bearish, but they almost always indicate the former.
Information Table
Features |
Explanation |
| Number of Candlesticks | 5 |
| Prediction | Bearish trend reversal |
| Prior Trend | Bullish trend |
| Relevant Pattern | Evening Doji Star |
Identifying a Bearish Breakaway Pattern
The first day of every breakaway candlestick pattern is usually a long bar and always continues the recent trend. The candle on the second day is the same color as the first. The third and fourth days close following the previous trend. However, the final day’s candle shows the opposite trend.
It means that the formation of the five candlesticks and five gaps must appear in a specific order to signify a bearish breakaway pattern. The following characteristics of it can help you identify it.
- The first candlestick must have a higher body-to-wick ratio and be significantly more bullish.
- The second candlestick must open with a gap upward and end with a price higher than it started.
- The third candlestick will be bullish and must close higher than the preceding candlestick’s closing price.
- The fourth candlestick will likewise have a close above the first one.
- The fifth candlestick must be a significant bearish candlestick. It must close within the first two candles’ body gaps. It separates and becomes bearish, which shifts the trend’s direction.
What Can Traders Learn from a Bearish Breakaway Candlestick?
The first white candle’s arrival signals the bullish trend, further supported by the gap between the top two candles. The following three candles are weak bullish candles. It indicates that the bulls are losing market control. The fifth candle’s arrival means that the bears are now in charge of the market. The fifth candle closes lower than the first three. However, it does not fill the gap between the first and second candles.
At this point, traders are hoping that the bears will continue to control the market in the upcoming trading session, changing the market’s existing uptrend into a bearish decline. However, the candles that form in the next few days must confirm the bearish breakaway pattern.
The bearish candlesticks close in the gap range, forming a bearish breakaway pattern. However, it must close below the first candlestick’s closing price. As a result, analysts must wait for the appearance of a bearish confirmation candlestick after this pattern.
Trading the Bearish Breakaway
Traders may trade a bearish breakaway in a certain way, much like other chart patterns. One must first identify a market entry point. Then, set the stop losses and profit objectives, ensuring that a trade develops with profitable expectations. Usually, it serves as a market sell signal. Therefore, there are profit targets behind the pattern.
The trader might use this pattern to short an overbought market. He can enter the market by using the sell orders below the fifth candlestick. The stop loss is positioned below the formation’s upper limits and represents a buy order for this trend.
However, there are various other ways to trade a bearish breakaway. The most common one involves precisely predicting when a bullish trend will reverse, which is usually the most challenging.
Additionally, the position size may only increase if the market moves in the desired direction when employing a grid method. You can achieve it by managing stop losses. If the market starts to fall oppositely, the losses will be far lower than if you committed to the transaction all at once.
Moreover, risk-reward, risk management, and technical analysis principles are part of a trading strategy. However, this section will discuss a few confluences that might raise this candlestick pattern’s success percentage.
- The top of the resistance or supply zone price chart is where the bearish breakaway pattern will appear.
- It must form when prices are overbought.
- It shouldn’t create under a price structure that fluctuates.
The advantage of the supply zone or resistance level is that there is a higher chance that the adverse price trend will reverse. However, you may also set a secure stop-loss order above the resistance or supply zone. These zones will defend the stop loss from price rises.
Conclusion
Candlestick patterns are adaptable and may be employed to analyze price trends and movements in several market situations. A breakaway candlestick pattern shows the formation of the opposite trend after starting the first day in the direction of the dominant trend on the fifth day. Traders may use these candlestick patterns to understand the markets and possible trend reversals.
The bearish breakaway pattern is utilized in stock and indices trading. Due to its rarity, traders must avoid using it for swing or intraday trading in forex.
