- Bear Pullback / Pullback Sell Trading Pattern
A Bear Pullback is when a price action within the context of a downtrend traces an orderly price increase/retracement/correction from a low of a down leg. Also called a "Pullback Sell."
The power of a downside move after a retracement can be greater after a strong and steady downtrend due to the possible increase in overhead resistance.
They can be stronger to the downside when the most recent swing low is also an all time low due the potential lack of future underlying support.
Technical analysts will often use the Bear Pullback pattern to begin looking for sell short entries as the asset reaches resistance or "retail" areas.
Real-life Chart Examples
Bear Pullback Trade Setup:
This is a continuation pattern that often appears during a downtrend. It represents a temporary pause or rise in the prevailing bearish trend, before resuming its downward movement.
Prior Bearish Trend: Before the pullback, there should be evidence of a clear downward movement, indicating a prevailing bearish trend.
Pullback: A temporary rise in price following the downward trend. This pullback is usually on lower volume and represents a short-term buying interest or a consolidation before the trend resumes. It's essential to note that the pullback should not be so deep that it erodes the majority of the prior downtrend.
Entry & Exit:
Entry: Traders often enter a short position when there are signs of the pullback ending and the bearish trend resuming. This could be signaled by candlestick patterns (like a bearish engulfing), other technical indicators, or a return of volume to the downside.
Target Price: Depending on the trader's strategy, the target could be the prior low or extended to a new low using Fibonacci extensions or other projection techniques.
Stop Loss: A common strategy is to place a stop loss above the highest point of the pullback or above a significant resistance level to protect against the possibility that the pullback is the start of a larger reversal.
Predictability & Factors to Consider:
Depth of the Pullback: A shallow pullback (often retracing 38.2% or 50% of the prior move) is often seen as a healthy correction in a strong trend. A deeper pullback might signal weakening momentum.
Volume: The volume during the pullback should typically be lower than the volume during the downward trend, indicating less conviction in the upward movement. An increase in volume as the trend resumes reinforces the bearish continuation thesis.
Trend Confirmation:The pullback should align with the stock's overall trend. If the long-term trend is bearish, the bear pullback is seen as a more reliable continuation pattern.
Imagine a stock that has been on a strong downward trend from $60 to $50 over several days. Following this move, it experiences a slight rise to $53 over the next two days on reduced volume. Observing this pullback, a trader identifies it as a shorting opportunity, expecting the downward trend to resume. If the stock starts moving down again with increased volume, a trader might enter a short position aiming for a target below $50, based on their projection method. The stop loss might be set just above $53 or a significant resistance level.
WARNING: As with any technical pattern, it's critical to approach the bear pullback with caution. Though it may show predictability in some situations, no pattern offers guaranteed results. External factors and sudden market news can affect the stock's price action. Always utilize multiple indicators and comprehensive due diligence to enhance trading decisions. This is for educational purposes only. Always consult a registered investment advisor before trading.
Get 6 (downloadable) trading tutorials emailed to you right now--FREE.