Learn with ETMarkets: Top-3 bearish patterns to trade in a falling market – Blue Barrows

Most of the new traders in the market are always in a buy-only mode- This works well in an upwards trending market but things quickly change when the trend reverses such traders then become mere spectators. In this article we will learn top-3 bearish chart patterns to trade in a falling market with practical examples and chart Images.

Top 3 patterns to trade in a bearish Market

1. Descending Triangles

2. Head & Shoulders

3. Rounding Top

1.Descending Triangle
Descending triangle is a continuation bearish pattern where the next move will be in the primary trend, usually this pattern is easier to find in stocks with weak fundamentals and take much less time for formation. Entry signal is registered when the stock closes below the lower trend line confirmed with volume.

Descending Triangles.ET CONTRIBUTORS

Target and Stops
The height of the pattern is measured and added below the breakdown level – The breakdown level becomes the primary area to decide the stop-loss.

2. Head and Shoulders
A very popular reversal pattern comparatively rare to spot, usually occurs when price action gets exhausted at the upside and forms three peaks, The middle one being the higher – Sell signal occurs when close is below the neckline – Volumes are highest during the breakdown comparatively to the previous peaks which signals bears are in full control of the next move.


Target and Stop Loss
Height of pattern should be plotted below the neckline; The neckline area becomes the stop loss

3. Rounding Top
Rounding top indicates reversal and often end of an up-trend, also referred to as inverse saucer. Sell signal is triggered when close is below the support (Neckline).

Rounding top.Agencies

Target and stop loss
Same as all above patterns, the height should be measured and plotted below the support line.

No pattern is 100% accurate but when combined with multiple tools and fundamentals the strike rate improves drastically. Also remember patterns when close above the neckline means the pattern has negated hence stops should always be in place.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)