Point & Figure (P&F) charts eliminate market noise, allowing traders to concentrate purely on price movement. This unique approach helps traders spot clear trends and patterns without the distractions of time-based fluctuations. Among these patterns, the P&F Bearish Triangle stands out as a continuation pattern, signaling that a downtrend is likely to resume. In this post, we’ll explore its structure, psychology, trading strategies, and key takeaways for traders and investors.
What is a P&F Bearish Triangle?
The P&F Bearish Triangle is a congestion pattern that forms within a prevailing downtrend. It reflects a temporary phase where selling pressure meets resistance from buyers, creating a momentary pause in price declines. However, this balance is short-lived. Once the pattern completes, sellers regain control, and the downtrend resumes.
The name “triangle” comes from the contracting price action — lower highs and higher lows — forming a wedge-like shape on the P&F chart. The eventual breakout to the downside confirms the pattern’s bearish bias.
Also see: P&F Bullish Triangle Pattern
Looking for information on the P&F Bearish Triangle pattern stock screener? Click here.
How Does the P&F Bearish Triangle Form?
The pattern develops in four key stages:
- Pre-existing Downtrend: The Bearish Triangle is a continuation pattern, so it must form within an established downtrend.
- Converging Price Action: Prices oscillate, creating lower highs and higher lows, leading to a tightening range.
- Formation of the Triangle: The narrowing price movement forms a distinct triangular shape on the P&F chart, indicating consolidation.
- Bearish Breakout: When the price decisively breaks below the lower boundary (marked by a column of O’s), the pattern completes, confirming the continuation of the downtrend.
The Psychology Behind the P&F Bearish Triangle
Understanding trader sentiment behind the pattern provides a deeper edge in trading:
- Indecision Phase: Initially, buyers and sellers battle for control, causing price compression.
- Exhaustion of Buying Pressure: The inability to form higher highs suggests weakening bullish interest.
- Bearish Breakout: When support fails, panic selling accelerates the move downward, confirming the dominance of sellers.
This cycle reflects the natural progression of market sentiment from hesitation to decisive action, leading to further price declines.
How to Trade the P&F Bearish Triangle
Trading this pattern effectively requires patience and precision. Here’s how to approach it:
1. Identify the Setup
- Confirm an ongoing downtrend before spotting the triangle.
- Ensure that price action is forming progressively lower highs and higher lows.
2. Wait for the Breakout
- The pattern is only valid after a clear breakdown below support (the lower boundary of the triangle).
- This breakout should be accompanied by strong momentum, indicated by a fresh column of O’s.
3. Enter the Trade
- A short position is ideal once the breakdown is confirmed.
- More aggressive traders may anticipate the breakout by entering near resistance within the triangle, but this carries higher risk.
4. Set a Price Target
- Measure the triangle’s height (distance from the highest high to the lowest low within the pattern).
- Subtract this height from the breakout level to estimate a downside target.
Also see: Some ways of setting up take profit levels
5. Manage Risk
- Set a stop-loss above the most recent lower high inside the triangle.
- Consider using trailing stops to maximize profits as the downtrend continues.
See: Stop Loss . . . and its importance in trading – Some ways of setting up stop loss levels
Also see: How to determine one’s tolerance to risk?
Final Thoughts
The P&F Bearish Triangle is a valuable tool for traders looking to capitalize on trend continuation opportunities. Its distinct structure and clear breakout criteria make it a reliable pattern for those who understand its psychology and trading strategies.
However, like any technical pattern, it works best when combined with additional confirmation tools such as volume analysis, moving averages, or support and resistance levels. Patience and discipline are key to successfully executing trades based on this setup.
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For examples of customizable P&F Bearish Triangle pattern factory stock scans that can be edited, modified, or revised, and subsequently scanned through ChartAlert’s native stock screener or technical analysis scanner, click here.