The Simplest Way to Use Bullish and Bearish Breakaway Candlestick Patterns

 

Hello everyone, Japanese candlesticks play an important role in technical analysis. Candlestick patterns can provide clues about where the price might go. We know that in Forex trading, if we can correctly predict the direction of the price, we can make more successful trades. One of the candlestick formations is the Breakaway Candlestick pattern. The Breakaway Candlestick pattern is divided into two types:

1. Bearish Breakaway Candlestick pattern
2. Bullish Breakaway Candlestick pattern

The Breakaway Candlestick Patterns

Both Breakaway Candlestick patterns are candle stick formations that show the beginning of a reversing trend. This formation consists of a combined candle stick and can be seen in both bullish and bearish trends.

 

          Bearish Breakaway Candlestick Pattern

Definition:

The Bearish Breakaway Candlestick Pattern is a reversal formation that occurs at the end of an upward trend. This pattern typically signals the beginning of a downward trend that may follow a bullish trend. The Bearish Breakaway pattern is defined by a formation of consecutive candlesticks in a specific sequence and has the following characteristics:

• The First Big Rise Candle: The pattern usually starts with a large green (bullish) candle, which shows a strong uptrend in the market.
• Small Doji or Small Bullish Candles: The second candle opens with a gap above the close of the first candle. This gap indicates a sudden and significant change in sentiment. Following the first large candle, there is usually a doji or a small green candle. This may indicate that the market is possibly beginning to lose momentum or becoming indecisive. The third and fourth candles can be of any type, but they are typically bullish. This is because bears are still trying to exert control over the market.
• The Big Red (Down) Candle: Next, a red (bearish) candle comes and usually closes below the closing of the previous green candles. This can also be a red marubozu candle. So, the Fifth candle is a large bearish candle that closes below the closing of the second candle. This shows that the sellers are beginning to dominate the market.

Trade:

The Bearish Breakaway Candlestick Pattern can be used in both stock and forex trading. This pattern is typically interpreted as a candle formation signaling the end of an uptrend and the beginning of a downtrend. Therefore, when this pattern appears, it may be a signal to close long positions or enter short positions at a point where the downtrend is gaining strength. When placing a sell order, the Stop Loss level can be set above the high of the fourth or fifth candle. If this pattern has formed near a resistance level, we adjust the Stop Loss order accordingly. Our Take Profit target will be a certain percentage below the entry price, based on the previous support level or our risk/reward ratio strategy. Look at the live example on the daily chart of Spot Gold/US Dollar:

Bearish Breakaway Pattern in Spot Gold Chart

The Bearish Breakaway pattern shows a change in the trend. If this candlestick formation is followed by a series of red candles, it could indicate that the downtrend is strengthening. However, it is important to remember that no pattern is perfect and the Bearish Breakaway Pattern can also fail. Therefore, it is important to verify the signal by using technical indicators, moving averages, and other technical analysis tools.

 

          Bullish Breakaway Candlestick Pattern

Definition:

The Bullish Breakaway Candlestick Pattern is a reversal formation that occurs at the end of a downward trend. This pattern typically signals the beginning of an upward trend that may follow a bearish trend. The Bullish Breakaway pattern is defined by a formation of consecutive candlesticks in a specific sequence and has the following characteristics:

• The First Big Drop Candle: The pattern usually begins with a large red (bearish) candle, which reflects a strong downtrend in the market.
• Small Doji or Small Down Candles: After the first large candle, there is usually a doji or small red candle. The second candle opens with a gap below the closing of the first candle. This indicates that the market is starting to lose momentum or is becoming indecisive. The third and fourth candles can be of any type, but they are often bearish.
• Large Green (Bullish) Candle: Following this, a green (bull) candle, often known as the fifth candle, appears and typically closes above the previous red candles. This can also be a green marubozu candle. This situation indicates that buyers are starting to dominate the market and may suggest a weakening of the downtrend. Thus, the formation of the pattern is complete, and from this point on, the market comes under the control of the bulls.

Trade:

The Bullish Breakaway Candlestick Pattern can be utilized in both stock and forex trading. This pattern is generally interpreted as a technical analysis formation indicating the end of a downtrend and the beginning of an uptrend. When the Bullish Breakaway Candlestick is observed on the price chart, we may consider taking action to open a long position at a point where the downtrend appears to be ending. The Stop Loss order can be placed below the lowest price reached by the fourth candle. If the pattern has formed at a support level, we adjust our steps accordingly. The Take Profit target can vary based on individual strategies. A live example is provided on the daily chart of Spot Gold/US Dollar:

Bullish Breakaway Pattern in Spot Gold Chart

If the Bullish Breakaway pattern is formed at a support level and continues with the formation of consecutive green candles, this indicates that the uptrend is strengthening. However, as with any pattern in technical analysis, it is important to be careful as the Bullish Breakaway pattern can also fail. Applying risk management strategies and using other validation tools are essential rules for successful trading in financial markets such as Forex.