support with downward breakout

Support with downward breakout

 

This pattern appears on the bull market and bear market. If you spot it on the bull market, it is most likely reversal pattern. On the bear market it will act as continuation pattern. Breakout is downward. This price formation looks like a descending triangle with top trend-line sloping down and flat bottom trend-line. You can call pattern valid if it has at least two peaks which are comprise 2 top touches and 3 bottom touches. Most important feature is height of peaks – first peak should be the highest one and every other peak has to be lower than the previous one. Bottom has to be flat as it is support which will be broken. Price trend leading to the pattern can be up or down. As a target for 1H timeframe, we use 200-300 pips distance.

support with downward breakout example

Support with downward breakout – example 1

support with downward breakout example 1

Here we have a splendid example of support with downward breakout. Chart shows EURCAD on the 1H timeframe. Price forming triangle like shape with downward sloping trend-line and bottom support. We see three descending peaks and flat bottom. Lower highs suggest selling pressure and downtrend leading to our triangle telling us that this is a continuation pattern. We have to expect further price drop. Notice that we have 3 touches of top line and 3 touches of bottom line before price breakout. Market falls about 350 pips down and revers – pullback. This is only temporary as soon after price continues dropping.

Support with downward breakout – example 1

 

support with downward breakout example 2

In this example, we can observe support with downward breakout on GBPUSD chart.  We marked points where price touching trend-line of triangle. This is important, as fully developed pattern gives us opportunity for bigger profit. Here we see price drop of 800 pips which is massive. For 1H timeframe we always use 200-300 pips target. Often after breakout price reversing and pulling back to overhead support, which becomes resistance, but sometimes drops further like in this example.  We always recommend placing exit order at the target level.

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