Sometimes you experience a significant amount of selling, only to find buyers rush in. That should sound relatively familiar after what we experienced this past week. There probably isn’t a more representative candlestick pattern than a Bullish Breakaway.
Bullish Breakaway Basics
As you’ll see in the description, Bullish Breakaway’s aren’t the most common pattern. However, this past week hasn’t exactly been very common as well. Three down days in a row has not only been hard to come by but having three consecutive days of lower highs and lows with a strong bounce is akin to seeing a unicorn. While I’m not ready to turn this pattern into a sasquatch sighting, it did provide a good opportunity to introduce a pattern that is like in abundance today.
Live Nation Entertainment, Inc (NYSE: LYV) is a good example, and a stock that I highlighted on @ the Close on Wednesday and on my unusual option activity log.
Bullish Reversal; Overall Rating: 3 Star
Number of Candles: 4+
Frequency Rating: 1 Star
Pattern Description:
Breakaway patterns form at the end of a down trend. The formation begins with a tall, closed candle with the price closing lower for the next few candles. The pattern completes with a large open candle that retakes a lot of the lost ground over the previous 3 candles.
Volume Description:
Volume diminishes throughout the formation and expands on the final candle.
Statistical Notes:
Breakaway patterns that gap between the first and second candle with the final candle closing in the gap perform best (exhaustion gap). This pattern performs best as a correction of a primary uptrend.
Measuring Technique:
The potential target of a Bullish Breakaway is the previous high before the correction in a primary uptrend. In a primary down trend, the potential target is a one-third to two-thirds correction of the move from the previous high.
Conclusion
Candle patterns like Bullish Breakaway’s really help reveal the psychology of trading. Incorporating volume along with the price even adds more depth. If price and time are the horizontal and vertical axes, then volume is the Z axis. That three-dimensional view of the price chart helps differentiate patterns that may have a difficult time following through versus those that don’t.
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