Bearish Breakaway Candlestick Pattern

The bearish breakaway is a Japanese candlestick pattern that makes $8.40 in the stock markets on average per $100 risked. The pattern occurs too infrequently in the crypto and forex markets to produce statistically significant results.

With 125 security trades over 21 years that will barely survive transaction fees and slippage, there are much better candlestick patterns to trade.

But if you’re interested in this pattern, there’s a better way to trade it.

Sound interesting?

If so, keep reading if you want to learn how to trade bearish breakaway candlestick patterns in a data-driven way.

What Is a Bearish Breakaway Candlestick Pattern

Bearish Breakaway Candlestick Pattern Illustration

A bearish breakaway pattern is traditionally thought of as a bearish reversal pattern. The pattern seems to produce slight profits, but past performance shows it infrequently occurs on daily candlestick charts.

Speaking of charts, let’s learn how to identify the five candlesticks that make up this elusive pattern.

How to Identify the Bearish Breakaway Candlestick Pattern

Bearish Breakaway Candlestick Pattern Identification (AL)

The following are the requirements for a valid bearish breakaway pattern:

  • The first candle must be a long bullish candle.
  • The second candle is bullish and gaps up.
  • The third candle must have a higher low and higher high than the second.
  • The fourth candle must have a higher low and higher high than the third.
  • The fifth candle must be bearish that closes the gap.
  • The pattern must occur in an uptrend.

We can see the bearish breakaway on the Air Lease (AL) daily chart on March 31st, 2021.

We see that price is in an upward trend as it’s above the fifty-day moving average. On the first day, we see a large bullish white candle continuing in the direction of the preceding trend. On the second day, price gaps up. The third day is a bearish black candle, but it still prints a higher high and higher low. The fourth day is bullish with a higher high and higher low. And the fifth day is a long black candle that closes the gap – barely.

With an understanding of how traders identify these five candles in breakaway patterns, how should we trade them? 

How to Trade the Bearish Breakaway Candlestick Pattern

The bearish breakaway patterns should not be traded due to insufficient data.

For those who don’t care about statistical significance, this pattern should be traded using a bearish mean reversion trading strategy targeting a 1:1 optimal risk-reward ratio.

But before we learn how to trade the pattern in a data-driven way, let’s understand how traders who love losing money rapidly by following conventional trading wisdom trade this pattern – just kidding – kind of.

Bearish Breakaway Bearish Reversal Trade Setup

Bearish Breakaway Bearish Reversal Trade Setup (TNL)

We can see the breakaway pattern once again on the Travel Leasure (TNL) daily chart. We see the price is in an uptrend as it’s above the fifty-day moving average.  The first bar is a tall white candle, or green depending on your charting platform setup,  in the direction of the trend. 

The second bar gaps up and is green. The third bar is bullish and has a higher low and higher than the previous. The same goes for the fourth candle. And the last candlestick is bearish, closing the second candle’s gap.

With the pattern identified, how do traders conventionally trade this using a bearish reversal strategy?

Traders enter short at a break of the last bar’s low with a stop loss above the fourth candlestick’s high.

In our Travel Leasure example, we would have entered short the next day, and this trade and we would have profited handsomely. But as I stated previously, there’s an even better way to trade this pattern, and it’s in the same direction.

Bearish Breakaway Bearish Mean Reversion Trade Setup

Let’s practice identifying the bearish breakaway candlestick pattern one more time.

We see the pattern on the Adams Resources & Energy (AE) daily chart on April 20th, 2018. Price is in an uptrend as it’s above the fifty-day moving average. We see a long white candle on the first day. The second day gaps up. The third day is bearish doji but still has a higher high and higher low than the second. The fourth day is a bullish marubozu. The last bar is bearish and closes the gap.

So how do data-driven, statistically insignificant traders handle these trend reversals? Traders using a bearish mean reversion trading strategy enter a short position after the price breaks above and back below the high of the pattern with a stop loss set at one average true range (ATR).

Using the Adams Energy chart above, the high of the pattern occurred on the last day at $47.63. Price went above the pattern’s high the very next day. The opening price was lower than the pattern high, causing a short entry on April 24th, 2018. The price moved lower, and we would have taken profits on April 27th, 2018.

And while past performance doesn’t necessarily guarantee future results, what does history tell us about this five candlestick pattern.

Does the Bearish Breakaway Candlestick Pattern Work? (Backtest Results)

Using the following rules, I backtested the bearish breakaway candlestick pattern on the daily timeframe in the crypto, forex, and stock markets.

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5. 
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Bearish Breakaway Bearish Reversal Backtest Results

cryptoforexstock
pattern_namebearish breakawaybearish breakawaybearish breakaway
pattern_categorybearish reversalbearish reversalbearish reversal
pattern_bars555
required_trenduptrenduptrenduptrend
traded_asbearish reversalbearish reversalbearish reversal
stop_bar_typehighhighhigh
entry_bar_typelowlowlow
risk_reward0.011
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers0.0177
patterns0.02164
trades0.01125
confirm_perc0.00.50.76
wins0.0168
losses0.0057
win_perc0.01.00.544
avg_win_bars0.00.05.57
avg_loss_bars0.00.013.04
cons_wins0.013
cons_losses0.002
edge0.01.00.084
cryptoforexstock
pattern_namebearish breakawaybearish breakawaybearish breakaway
pattern_categorybearish reversalbearish reversalbearish reversal
pattern_bars555
required_trenduptrenduptrenduptrend
traded_asbearish reversalbearish reversalbearish reversal
stop_bar_typehighhighhigh
entry_bar_typeclosecloseclose
risk_reward0.031
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers0.0177
patterns0.02164
trades0.02148
confirm_perc0.01.00.9
wins0.0182
losses0.0166
win_perc0.00.50.554
avg_win_bars0.01.06.77
avg_loss_bars0.02.05.8
cons_wins0.013
cons_losses0.012
edge0.01.00.104

Bearish Breakaway Bullish Continuation Backtest Results

cryptoforexstock
pattern_namebearish breakawaybearish breakawaybearish breakaway
pattern_categorybearish reversalbearish reversalbearish reversal
pattern_bars555
required_trenduptrenduptrenduptrend
traded_asbullish continuationbullish continuationbullish continuation
stop_bar_typelowlowlow
entry_bar_typehighhighhigh
risk_reward0.014
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers0.0177
patterns0.02164
trades0.0066
confirm_perc0.00.00.4
wins0.006
losses0.0060
win_perc0.00.00.091
avg_win_bars0.00.08.33
avg_loss_bars0.00.00.93
cons_wins0.001
cons_losses0.002
edge0.00.0-0.546
cryptoforexstock
pattern_namebearish breakawaybearish breakawaybearish breakaway
pattern_categorybearish reversalbearish reversalbearish reversal
pattern_bars555
required_trenduptrenduptrenduptrend
traded_asbullish continuationbullish continuationbullish continuation
stop_bar_typelowlowlow
entry_bar_typeclosecloseclose
risk_reward0.015
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers0.0177
patterns0.02164
trades0.02153
confirm_perc0.01.00.93
wins0.005
losses0.02148
win_perc0.00.00.033
avg_win_bars0.00.00.6
avg_loss_bars0.00.50.0
cons_wins0.000
cons_losses0.023
edge0.0-1.0-0.805

Bearish Breakaway Mean Reversion Backtest Results

cryptoforexstock
pattern_namebearish breakawaybearish breakawaybearish breakaway
pattern_categorybearish reversalbearish reversalbearish reversal
pattern_bars555
required_trenduptrenduptrenduptrend
traded_asbullish mean reversionbullish mean reversionbullish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_lowpattern_lowpattern_low
risk_reward0.011
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers0.0177
patterns0.02164
trades0.0143
confirm_perc0.00.50.26
wins0.0023
losses0.0120
win_perc0.00.00.535
avg_win_bars0.00.01.61
avg_loss_bars0.00.02.0
cons_wins0.002
cons_losses0.012
edge0.0-1.00.075
cryptoforexstock
pattern_namebearish breakawaybearish breakawaybearish breakaway
pattern_categorybearish reversalbearish reversalbearish reversal
pattern_bars555
required_trenduptrenduptrenduptrend
traded_asbullish mean reversionbullish mean reversionbullish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_lowpattern_lowpattern_low
risk_reward0.011
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers0.0177
patterns0.02164
trades0.0143
confirm_perc0.00.50.26
wins0.0023
losses0.0120
win_perc0.00.00.535
avg_win_bars0.00.01.61
avg_loss_bars0.00.02.0
cons_wins0.002
cons_losses0.012
edge0.0-1.00.075

Similar Candlestick Patterns

Multiple candlestick patterns are often confused with the bullish abandoned baby. It’s essential to understand the differences when using candlestick pattern technical analysis.

Bullish Breakaway Candlestick Pattern vs. Bearish Breakaway

The bullish breakaway candlestick pattern is very similar to the bearish breakaway. They are both considered reversal patterns, but the rules are reversed.

For example, the bullish breakaway pattern occurs in a downtrend, while the bearish occurs during an uptrend. The first candle of the bullish breakaway is bearish, while the bearish is bullish—the second candle of the bullish breakaway gaps down while the second of the bearish breakaway gaps up. The following two candles have either higher highs and higher lows or lower highs and lower lows for the bearish and bullish patterns, respectively. And the fifth candlestick is bullish for the bullish breakaway and bearish for the bearish breakaway.

Advance Block Candlestick Pattern vs. Bearish Breakaway

The advance block candlestick pattern is similar to the bearish breakaway. Both candlestick patterns occur in an uptrend and expect a future bearish trend or reversal. 

The advance block is a three bar pattern with three white candles of progressively smaller size. As we just saw, the bearish breakaway has five candlesticks, with the first four moving upward with a large bearish candle in the direction of the trend.

The most significant difference is that the advance block does not contain gaps, and all of the candles must be white, while the bearish breakaway must gap up and can contain both bullish and bearish candles.

The Bottom Line

The bearish breakaway candlestick pattern is considered a reversal pattern but the data hints that traders should trade the pattern using a mean reversion strategy. The pattern infrequently occurs in the market, so it’s a relatively high risk

Leave a Comment