Bearish Breakaway Candlestick Patterns Explained: What They Are & How To Trade Them

What Is a Bearish Breakaway Candlestick Pattern?

A bearish breakaway is a bearish reversal formation.  They occur during uptrends and consist of 1) a large-bodied candlestick moving up, 2) a small-bodied candlestick that gaps up, 3) two candlesticks with progressively higher closes, and 5) a large bodied candlestick moving down that closes in the gap between the first two.

It is the bearish version of the breakaway pattern, and therefore the opposite of the bullish breakaway pattern.  It is also similar to the ladder top pattern.

Of course, no candlestick pattern guarantees a particular outcome.  They are more like suggestions than promises.

So, what do bearish breakaway patterns really tell you?

What Bearish Breakaway Patterns Mean

Like many candlestick patterns, the name itself doesn’t reveal much.

And unlike some, English speakers do not use the Japanese name for this one.  Instead, the term “breakaway” probably comes from the way price action seems to depart from the underlying trend.  Unfortunately, the name isn’t especially memorable nor does it provide any real reminder as to how the pattern works.

In trading terms:

1. First Period – The price increases significantly, in line with the upward trend.
2. Pre/Post-Market Trading – The price increases.
3. Second Period – The price increases modestly or (stays neutral).
4. Third Period – The price closes higher than the prior period.***
5. Fourth Period – The price increases.
6. Fifth Period – The price decreases significantly, closing within the gap between the first and second periods.

***The candle representing the third period can be bullish or bearish, as long as it closes higher than the previous one.  In other words, it can be a bullish candle or a bearish candle preceded by a gap which it partially fills.

This threatens the ongoing uptrend and creates several decision zones that are likely to play a major role in determining trend direction.  If buyers cannot push price back  above the formation, it may lead to a bearish reversal and subsequent downtrend.

Figuratively, bearish breakaways indicate that the bears may have intercepted the momentum.

How To Recognize Bearish Breakaway Candlestick Patterns

Patterns are attractive partly because they stand out.

To the untrained eye, they may mean nothing.  But to those with experience, they are something like a beacon.  They draw your attention to a specific segment of price action, encouraging you to look more closely.

To gain this insight, all you need to do is learn the rules and practice finding them on the charts.

By definition, a bearish breakaway pattern has several requirements.

• It must appear during a general uptrend.
• The first candle must be a bullish long-line candlestick.
• The second candle must open with a gap up.
• The second candle must be a bullish short candle (ie. spinning top) or a neutral one (ie. doji)
• The third candle must close above the second.
• The fourth candle must be a bullish candle.
• The fifth candle must be a bearish long-line candlestick.
• The fifth candle must close within the gap between the first and second candles.

As you can see, each candle has its own unique ruleset.

However, some exceptions may be acceptable.

• The gap between the first and second candle can go (especially in markets where gaps are less common, like cryptocurrency), as long as the final candle closes at the neckline between the first two candles.
• The second candle doesn’t necessarily have to be a short candle, as long as it is preceded by a gap and all other criteria are met.
• There can be more than two candles between the second and fifth, as long as all of them close progressively higher.
• The fifth candle doesn’t necessarily have to close inside the gap between the first and second, if it closes below the gap.

You may find better results by stretching some of these criteria (or even adding your own).  For instance, your analysis may reveal that bearish breakaway patterns in which all of the first four candles are bullish perform more reliably.  Or, you may find something else entirely.

Technically, these variations may fall more accurately under other candlestick reversal patterns, like the ladder top.

This is okay though, as implication supersedes classification.  And similar patterns usually have similar implications (though not always).

Yet, that does not mean that these standards are wholly irrelevant.  In fact, certain ones are definitely mandatory, such as the higher consecutive closes or the direction of the candles.  It just means that deeper examination may help you identify more and/or better trading opportunities.

Ultimately, how seriously you take each of these guidelines is up to you.  Don’t forget that the purpose of analyzing candlestick patterns is to interpret underlying price action.  Your pattern labeling skills are less important.

To this end, you need to understand where they fit.

Where Bearish Breakaways Fit in the Chart Narrative

The markets are often described as a battle between the bulls and the bears.

Bearish breakaway patterns show that the bulls pressed their advantage on candle one (and between candles one and two), continued to do so over the next three periods, then surrendered control to the bears by the end of candle five.

On the chart, it looks like a bullish turnover followed by a bearish fast break.

In the short-term, it amounts to a tactical counterstrike by the bears.

The question for traders:

“Will the bears run away with a reversal or can the bulls rebound from a surprising final day?”

To answer that question, you’ll need more than an understanding of Japanese candlesticks and candlestick patterns.  You’ll want to evaluate both within the context of longer-term chart patterns as well as trend and price levels.  You’ll also want to make use of your own chart markup and indicators.

Explore the history of your preferred asset(s) with respect to breakaway candlestick patterns and apply your findings to your own trading style.

The more thorough your technical analysis, the more clear the story in the charts becomes.

How To Trade Bearish Breakaway Candle Patterns

Bearish reversal patterns are great places to enter shorts or exit longs, especially when you see them coming.

As such, bearish breakaway candle patterns serve as easy-to-spot signs of potential changes from bullish to bearish momentum.  They may even lead to cycle-ending tops.

In most cases, you can assign greater weight to multi-stick patterns than single candles because they provide more information over a longer duration.  However, you should wait for all candles to close before making any decisions.  Otherwise, there is a good chance that you’ll get caught in a fake out.

Additionally, there are a few other things you should consider before trading candlestick patterns.

First and foremost, they are never a “sure thing.”  According to Bulkowski’s Encyclopedia of Candlestick Patterns, bearish breakaways have a hit rate of 63% (while bullish breakaways have a hit rate of 59%).  Sure, that is pretty decent but nowhere near a certainty.

What’s more, candlestick patterns do not have uniform price targets or measured moves like chart patterns do.  That makes position management trickier.

Plus, failed reversal patterns often lead to continuation or consolidation.  Thus, you’d be wise to seek additional confirmation factors to increase your odds of a successful trade.

Some of these include:

• Volume – Reversals are often accompanied by elevated trading volume.  For breakaway patterns, you want to see a spike on the fifth candle (or shortly thereafter).
• Price Formations – Bearish reversal patterns that form just below important resistance levels tend to be more reliable.  They also reinforce the strength of these levels.
• Oscillator Shift – Oscillating indicators like the RSI or stochastics are commonly used to identify reversals by analyzing slope, percentile, and/or divergence.

The more corroborating elements are present, the more confident you can be about the strength of a bearish breakaway reversal signal.

Even so, it would be difficult to form a successful trading strategy built around any single candlestick pattern.  There simply isn’t enough there to develop a strong edge.  It would still be suboptimal with an expert understanding of trading math, order execution, market psychology, risk management, options, and automation.

In essence, breakaway patterns are more useful idea givers than trade makers.

Better yet, you’ll probably find more success building your strategy around other tools and using candlestick patterns as the final point of confirmation.

Other Candlestick Pattern Types

There are many bearish reversal candlestick patterns.

The bearish breakaway is only one.

Likewise, there are many bullish reversal candlestick patterns.  Not to mention, you have bearish continuation candlestick patterns and bullish continuation candlestick patterns.

For most traders though, tackling all candlestick patterns at once may be the best learning path.

• Abandoned Baby – Bearish | Bullish
• Breakaway – Bearish | Bullish
• Counterattack Line – Bearish | Bullish
• Doji Star – Evening | Morning
• Engulfing – Bearish | Bullish
• Harami – Bearish | Bullish
• Harami Cross – Bearish | Bullish
• Hikkake – Bearish | Bullish
• In Neck – Bearish | Bullish
• Kicking – Down | Up
• Ladder – Top | Bottom
• Last Engulfing – Top | Bottom
• Long Day – Black | White
• Mat Hold – Bearish | Bullish
• Matching – High | Low
• Meeting Lines – Bearish | Bullish
• On Neck – Bearish | Bullish
• Separating Lines – Bearish | Bullish
• Star – Evening | Morning
• Stomach – Below | Above
• Tasuki Gap – Downside | Upside
• Three Inside – Down | Up
• Three Line Strike – Bearish | Bullish
• Three Methods – Falling | Rising
• Three Outside – Down | Up
• Tri-Star – Bearish | Bullish
• Tweezer – Top | Bottom
• Window – Falling | Rising

Sure, it is quite a long list.

Luckily for us all, you don’t need to memorize every pattern and its criteria.  Instead, focus on price action and technical analysis principles.  The goal is to be able to look at any group of candlesticks and understand what they mean.

The more candlestick patterns you study, the easier this will become.

Takeaways

To review:

Bearish breakaways are a type of candlestick pattern that signal a potential bearish reversal.  While not a guarantee, their appearance may indicate that market conditions are shifting in favor of sellers.  When used properly, this can help you find winning trades.

Of course, there are other candlestick patterns that you should learn about.  Still, the ability to recognize patterns is not enough to trade successfully on its own.

Nonetheless, you’ve now added one more weapon to your trading arsenal.

Have questions or more information to add?  Contribute to the conversation in the comments below!  Or, if you know someone who could benefit from this post, share it with them.  You can also check out our Candlestick Patterns Guide to improve your candlestick analysis skills.