Bapital Logo

8 Powerful Bearish Chart Patterns

Patrick Stockdale
Written by Patrick Stockdale | April 6, 2022

Bearish chart patterns are technical analysis patterns on price charts that signal that the price of a financial market might decline in price in the near future.

These chart patterns are used by traders and investors to either take profits on buying trades or more commonly they are used for identifying potential shorting trade setups in the market.

The 8 top bearish chart patterns are:

  1. Bear Flags
  2. Descending Triangles
  3. Head & Shoulders
  4. Double Tops
  5. Rounding Top
  6. Rising Wedge
  7. Rising Channel Break
  8. Support Break

These bearish chart patterns are either a continuation pattern which means the pattern is indicating a continuation in the bearish price trend or a reversal pattern which indicates that a bullish price trend is nearly finished and a bearish reversal in price is imminent.

Bear Flags

Bear flags are continuation bearish chart pattern formations that are shaped similar to a flag turned upside down.

A bear flag chart pattern indicates that the price of a market could continue lower in price if the price breaks below the flag support level.

A visual representation of a bear flag is below.

Bear Flag Price Chart

These bear flags signal a short setup when the price breaks through the lower support level of the flag.

Stop-loss placement for bear flags is either placed just above the support level or as high as the bear flag's upper resistance level.

This will depend on the specific trader's risk tolerance. New traders find the bear flag pattern is not difficult to learn.

Descending Triangles

Descending triangles are continuation chart pattern formations that are comprised of two lines, one that connects the lower highs in the price and the second line is a horizontal support level that connects the support prices.

A visual representation of a descending triangle pattern is below.

Descending triangle bearish chart pattern

A short trade is signaled when the price breaks below the lower horizontal support level.

Stop-losses for descending triangles are placed just above the support level or at the down-trending resistance level.

This will depend on an individual trader's risk tolerance.

Head & Shoulders

A head and shoulder chart pattern is a reversal chart pattern formation that looks like a head and shoulders on a financial price chart.

A head and shoulder chart part is comprised of a "left shoulder", "a head", "a right shoulder" and "a neckline".

A visual representation of a head and shoulders pattern is below.

Head and shoulder bearish chart pattern

Whenever the head and shoulders pattern develops in a market, it can signal a reversal in the price from rising prices to declining prices.

The support level of the head and shoulder pattern is called the "neckline" and it's at this area that traders generally enter into a short trade.

Traders will either place a stop-loss just above the neckline or if at the top of the right shoulder of the pattern.

This will depend on a trader's risk tolerance.

Double Tops

A double top pattern is a reversal chart pattern formation that has two clear resistance levels i.e. price touches the resistance level twice before retracing and declining much lower.

A visual representation of a double top pattern is below.

Double Top bearish chart pattern

There are many ways traders use the double top chart pattern to enter into short trades.

The most common method is to enter a short trade when the price breaks below the previous swing low.

Stop-losses are placed just above the double top resistance level.

Rounding Tops

A rounding top pattern is a reversal chart pattern formation whereby the resistance level is shaped like a rounding level (or upside down u shape).

It signals that a bullish price trend may potentially reverse and that the price of a financial market is about to decline.

A visual representation of a rounding top chart pattern is below.

Rounding Top bearish chart pattern

Traders typically enter a short trade when the price of the market breaks the support level of the rounding top.

Stop-losses are generally placed at a previous swing high price level or just above the support level of the rounding top base.

Rising Wedges

A rising wedge chart pattern is a reversal chart pattern formation that occurs when the price of a market makes higher lows for a support level while simultaneously making lower highs for the resistance level during the course of a bearish downtrend.

Usually, rising wedges form during a bear market, when a previous downtrend has temporary bullish price action.

A visual representation of a rising wedge is below.

Rising Wedge bearish chart pattern

A trader will enter a short trade when the price of a market breaks the lower rising support level.

Stop-loss placement is placed either just above the rising support level or at the rising wedge resistance level.

Rising Channel Break

A rising channel break is a bearish reversal chart pattern formation that occurs when the price of a financial market trades within a rising trading channel or price range with a clear support and resistance level.

A visual representation of a rising channel break is below.

Rising Channel Break bearish chart pattern

Short triggers occur when the price of a market breaks the rising support level.

A stop-loss is placed just above the rising support level or at the resistance level of the rising channel.

This will depend on an individual trader's risk tolerances.

Support Break

A support break chart patterns forms when a clear level of a horizontal support line is breached and the price of the market declines.

A visual representation of a support break chart pattern is below.

Support Break bearish chart pattern

A short trigger occurs when the price breaks below the support level.

Stop-losses are placed just above the support level.

Summary

Bearish chart patterns can be a great way for a trader to find shorting opportunities in any financial market.

These bearish patterns can be applied to any timeframe or any market where they are found.

A trader should wait for the bearish chart pattern to complete before shorting a market.

Typically, the short setup will trigger when the price breaks the support level of the chart pattern.

New traders should practice finding these technical analysis chart patterns and trade them on a demo account to learn in a risk-free environment.