Key Indicators of a Strong Bear Breakout

Key Indicators of a Strong Bear Breakout

1. Large Bear Trend Bar

• Characteristics:
  • Displays a big body with small or no tails.
  • Larger bars significantly increase the success of the breakout.

2. High Volume

• Criteria:
  • Volume during the breakout is 10–20 times greater than the recent average.
  • This elevated volume improves the chances of follow-through and measured movement post-breakout.

3. Significant Spike

• Description:
  • An extended price spike that continues for several bars, breaking through key support levels.
  • Key support levels may include moving averages, swing lows, and trendlines.

4. Urgency During Formation

• Indications:
  • The breakout bar typically remains near its low with minimal pullbacks, ideally less than 25% of the bar's height, indicating strong selling pressure.

5. Strong Follow-Through Bars

• Observation:
  • Subsequent bars should show strong bear bodies continuously, denoting continued downward momentum, even if there are small tails present.

6. Micro Gaps

• Understanding:
  • Successive bars may create micro gaps which can include:
  • A high below the previous bar's close, or
  • An open below the previous bar's close.

7. Closes at Lows

• Significance:
  • Bars close on or very near their lows, which reinforces the prevailing downward momentum and strength of the breakout.

8. Multiple Bear Bars Without Pullbacks

• Development:
  • The spike can grow to 5–10 bars sustaining itself without any significant pullback, showcasing strong bearish sentiment.

Contextual Strength

9. Supportive Context

• Alignment:
  • The breakout should coincide with a resuming trend, indicating a lower high or a strong test of a prior bullish high.

10. Prior Bearish Days

• Influence:
  • If there have been several strong bearish trading days recently, the likelihood of the current breakout being successful increases.

11. Bearish Trading Range Pressure

• Dynamics:
  • Within the trading range, bear trend bars should dominate over bull trend bars, indicating stronger bearish pressure.

Pullback Behavior

12. Delayed Pullback

• Timing:
  • The first significant pullback occurs only after at least 3 breakout bars, indicating sustained selling momentum.

13. Small, Brief Pullback

• Characteristics:
  • The pullback lasts just 1–2 bars and typically lacks signs of strong bullish reversal characteristics.

14. Pullback Doesn’t Retest Breakout

• Analysis:
  • A successful pullback will not retest the breakout point and remains below it, avoiding triggering breakeven stops for early sellers.

Reversal Scope

15. Wide Range Reversal

• Definition:
  • The breakout can reverse the closes and lows of multiple recent bars, from 5 up to over 20 bars.
  • Stronger reversal signals come from bars that close significantly below previous lows rather than just dipping below their lows.