🎁TA Education 3｜2 Common Bearish Patterns - How to Spot Misleading Signals?
Hello everyone, welcome to the third episode of our Technical Analysis series. Today, we’ll be learning the last two bear-market patterns out of the six common chart formations.
1. Bearish Divergence - Warning Sign
From June 2023 to August 2023, $Apple(AAPL)$ price continued climbing to new highs, but the buying volume steadily declined, forming lower highs.
This bearish volume divergence signaled weakening momentum. By August, the trend failed, leading to a gap-down and a sharp sell-off—confirming that the earlier volume warnings were valid.
Key Characteristics of Bearish Volume Divergence:
Price makes a new high: Peak B rises above Peak A, showing continued upward movement.
Volume makes a lower high: Volume at Point B is weaker than at Point A, indicating reduced participation.
Classic warning of fading momentum: Even though price pushes higher, the lack of strong volume support suggests the uptrend may be losing strength.
Easy analogy: Like climbing a hill while the crowd’s cheering becomes quieter—the effort increases, but the support behind it weakens.
2. Selling Climax (Capitulation)
Example: $SPDR S&P 500 ETF Trust(SPY)$ , March 2020 During the COVID market crash, SPY experienced a violent decline accompanied by massive volume spikes.
This surge in volume reflected capitulation—investors dumping positions in panic. The extreme selling pressure marked the exhaustion of the downtrend, which was soon followed by a strong rebound.
Key Characteristics of a Selling Climax (Capitulation):
Sharp, steep decline on extremely high volume: Price drops rapidly as traders and investors rush to sell.
Typically appears after an extended downtrend: Fear builds over time until it finally erupts into a panic sell-off.
Candles often show a long lower wick: This indicates heavy intraday selling followed by aggressive buying attempts, sometimes forming a hammer-type candle.
Easy analogy: Panic selling — everyone rushing for the exits at the same time.
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2020年SPDR标普500指数ETF崩盘的抛售高潮例子很好地提醒我们，恐慌往往标志着下跌趋势的结束，而不是开始。这些巨大的成交量峰值加上较长的较低灯芯通常表明恐惧已经达到顶峰，更强的手正在介入。这是极少数几次极端波动实际上预示着机遇而不是危险的情况之一。
总的来说，这两种模式相辅相成——一种预警早，另一种确认晚。我发现这两者在评估趋势强度和发现潜在反转点时都很有用。
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Eg: $Advanced Micro Devices(AMD)$ in November.
While its stock price pushed to new all time highs, the underlying momentum, as measured by indicators, told a different story. This pattern serves as warning sign of significant price correction that followed.
AMD hits a 52 week high end October. However the price's higher high was contradicted by the RSI's lower high, forming the classic bearish divergence pattern.
Soon after the divergence became apparent AMD corrected sharply , ultimately dropping 27% from its peak.
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This event often marks the final stage of a downtrend & signal that a market bottom is near as most of the investors with lower risk tolerance have exited the market , leaving potential buyers to step in.
Eg: April 25, $NVIDIA(NVDA)$ experienced a significant drop that displayed the characteristics of a selling climax. Nvidia dropped 7.3% on April 4, marking the 2nd straight day of major drops. This sharp drop was followed by big spike in trading volume. The high volume on a sharp down move indicates panic selling.
After April lows, Nvidia bounced back. By June Nvidia had rallied 45% from April lows.
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