Breakaway Candlestick Pattern Explained: Formation, How to Trade

Candlestick charts help users get a feel for what traders are thinking and read the market. Each candle is a part of a price tale. You get the open, the high, the low, and the close all in one time period. Patterns are there when multiple candles are in the same shape. These patterns advise traders where the market might go next or where it might reverse.

Breakaway is a five-candle pattern that generally shows up when a trend has settled down. Breakaway comes in two kinds. The bullish breakaway may signal that a downturn is transitioning into an uptrend. A bearish breakout could suggest an upswing is turning into a decline.

Keep reading to learn more about the pattern and how to trade it.

Key Takeaways

• The breakaway pattern is a five-candle pattern that can indicate a potential trend reversal.
• A bullish breakaway usually shows up after a decline and indicates that purchasing pressure may be building.
• The bearish breakaway often follows an advance and may signal increasing selling pressure.
• The fifth candle matters because it closes within the gap between the first and second candles, signaling a decisive shift against the prior trend.
• Traders should look for proof in price moves, trading volume, and other tools before stepping into a trade.

What is a Breakaway Candlestick Pattern?

The breakaway candlestick pattern is a five-candle shape that can warn of a change in the market trend. Usually, the pattern begins with a move in the current direction. The next candles reflect a slight decrease in this momentum, and the fifth candle advances strongly, closing inside the price gap formed between the first and second candles.

The pattern can be present in bullish and bearish ways. A bullish pattern usually forms at the conclusion of a downtrend and a bearish pattern at the end of an uptrend.

The pattern does not necessarily predict a reversal. Instead, it can be a signal for traders that the current trend is losing momentum.

What is Bullish Breakaway Candlestick?

The bullish breakaway is known as a five-candle reversal pattern and commonly comes into play in a downtrend and signals that the momentum buyers have now started to come into action and sellers have tired themselves out.

How a Bullish Breakaway Pattern Forms

Usually, you can recognize the structure by the following pattern:

1. The First Candle

The first candle is a long bearish candle that continues the downward trend. It’s a sign that sellers are in control.

2. The Second Candle

The second candle maintains the bearish action and can open with a gap from the prior candle. This suggests there is still some selling force.

3. The Third Candle

This third candle is usually smaller and suggests that the downward trend is starting to lose intensity. It might be optimistic or bearish based on the particular pattern.

4. The Fourth Candle

The fourth candle continues the slowing trend and could be rather tiny. This means growing uncertainty between buyers and sellers.

5. The Fifth Candle

The fifth candle is a strong bullish candle that closes cleanly within the price gap created between the first and second candles. This precise technical placement provides the critical reversal signal, confirming that buyers are absorbing remaining supply and taking control.

More significant is the pattern when it forms at the bottom of a sustained slump and is confirmed by other technical indicators.

What is a Bearish Breakaway Candlestick Pattern?

The bearish breakaway is contrasted with the bullish breakaway. This usually happens after an advance and can signal that purchasing momentum is fading and that sellers are starting to take control.

How a Bearish Breakaway Pattern Forms

1. First Candle

   The first candle is elongated, bullish, and continues the present rise. Indicates considerable buying pressure.

2. Second Candle

   The second candle is still bullish and can open above the preceding candle, leading to an upside gap. This indicates buyers are still in control.

3. Third Candle

   The third candle is usually shorter, indicating that the upward momentum may be weakening.

4. Fourth Candle

   The fourth candle still shows a reduction in buying pressure. Depending on how it forms, it can be bullish or bearish.

5. Fifth Candle

   The last candle is a strong bearish candle that closes firmly within the price gap established between the first and second candles. This structural confirmation is a sign that sellers are taking over and a bearish reversal is brewing.

Bullish vs Bearish Breakaway Candlestick Pattern

Feature	Bullish Breakaway	Bearish Breakaway
Existing trend	Downtrend	Uptrend
Possible reversal	Bearish to bullish	Bullish to bearish
First candle	Long bearish	Long bullish
Middle candles	Show weakening selling momentum.	Show weakening buying momentum.
Fifth candle	Strongly bullish and closes within the gap between candles 1 and 2.	Strong bearish and closes within the gap between candles 1 and 2.
Market sentiment	Buyers may gain control.	Sellers may gain control.