Bearish Point and Figure Patterns Explained

Bearish Point and Figure Patterns

Triple Bottom

The pattern is formed by three downs (1,2,3), on the third drop it pushes past the support line formed by the first two.

The third column will drop past the support line an equal distance to that of the tops.

Breakout of a Spread Triple Bottom

This pattern is a variation to the triple bottom except that on the third rally it fails to breach the support line. On the fourth move it breaks past the support line and should drop an equal amount to that of it's tops.

Descending Triple Bottom

Another variation of the triple bottom except in this case each consecutive low is lower than the last. When the price drops below the support line this generates a clear selling signal.

Downward Breakout of a Bearish Support Line.

A variation of the descending triple bottom except in this case there is an upward bias. The signal is to sell on the support line breakout.

Downward Breakout of a Bullish Support Line.

This pattern consists of a consecutive series of higher lows. When the price breaks through the support line a sell signal is given.

Bearish Trend Reversals

Head and Shoulders

The head and shoulders pattern is found in candlestick, point and figure, and chart patterns and is considered one of the most reliable reversal patterns.

The price forms a high on column one, followed by a period of consolidation. A second high is created followed by another period of consolidation, the right shoulder is then formed followed by a sell off. High volume should be seen on the last downward move.

Parralel support and resistance lines can be drawn as well as a visible neckline.

The height of the highest high should give a projection of the drop of the final downward move.

Triple Top

The triple top is a variation of the head and shoulders pattern. This pattern consists of three peaks of similar height. After the third peak is formed and the price movement breaks the neckline, a bearish signal is given. The expected drop should be of similar height as from the neckline to the tops.

Double Top

The double top is a variation of the triple top pattern. This pattern consists of two peaks of similar height. After the second peak is formed and the price movement breaks the neckline, a bearish signal is given. The expected drop should be of similar height as from the neckline to the tops. It is important to note that before the price drop, the trend line is broken.

Bearish Rectangle Reversal

The uptrend forms a clear period of consolidation, the support line is then broken on a heavy volume day, it is at this point where the bearish signal occurs.