The Bearish Gap Below Consolidation Pattern

The bearish gap below consolidation is a pattern that often signals a massive sell off in a stock. Investors should avoid these stocks and traders can short these stocks.

While this type of gap does not happen often, when it happens to your stock, you should really pay attention to it.

For those who do not know what a consolidation is...

A consolidation is where the stock trades sideways for a period of time. For example, the stock may trade between $45 and $50 for 3 months.

Eventually the stock will either breakout or breakdown of the consolidation.

A breakout will be bullish while a break below the consolidation will be bearish. When a stock gaps down below the consolidation, that is double bearish.

The Bearish Gap Below Consolidation Pattern

The chart above shows SOHU consolidating for almost two months. Then it gap down below the consolidation. You can see how the stock already had a sell off during the day.

Sometimes the stock may bounce up but most of the time it will continue to go lower.

Trivago is an extreme example of bearish gap below consolidation.

In the daily chart of TRVG above, you can see 3 gap below consolidations.

The first gap below consolidation send the stock going lower immediately. While the second gap down did not have a sell off, nevertheless, investors still lost a lot of money on TRVG.

The 3rd gap below consolidation behaved like the 1st one. It send the stock lower quite fast.

Works In Other Time Frames As Well

I have found that this pattern also works very well in other time frames as well.

The chart above is the 15 min chart of Apple.

Apple had a very bearish start to the day by gapping below a 15 min consolidation. It immediately had a quick sell off.

The Bottom Line

Gaps can be very powerful.

A gap down is very bearish for the stock. If your stock gaps down below a consolidation, it can be very hard for it to rise again. The consolidation will act as a resistance even if the stock manages to rise back to that area.

Therefore, be very careful when your stock experiences a gap down below consolidation. It is wise to consider selling your shares.

Charts with the Freestockcharts.com label are courtesy of Freestockcharts.com

Charts with the investing.com logo are courtesy of Investing.com powered by Trading View

  • If you like this article, consider starting the Stock Market Course. It is free and jam packed with great information for newbies.
  • Want to have updates on the financial markets? Join my Telegram Channel. Dstockmarket.com Channel.
  • Help support this page and press the Facebook Like button below. Thanks!

Recent Articles

  1. Technical Analysis Lessons From OKA Corp Stock Chart

    Aug 17, 18 05:07 AM

    In this lesson we will take a look at the technical developments of OKA Corp's stock price and why it moved the way it did. We will also have a look at what might happen to OKA's stock price.

    Read More

  2. Technical Analysis Lessons From BMY Stock Chart

    Aug 16, 18 07:28 AM

    In this lesson, we will learn how and why BMY manage to bottom out and start a new uptrend.

    Read More

  3. Technical Analysis Lessons From Pentamaster's Stock Chart

    Aug 14, 18 08:19 AM

    In this lesson we will learn and examine why Pentamaster was able to recover all of its losses to start a new uptrend and achieve new highs.

    Read More

  4. Technical Analysis Of KLCI August 13 2018

    Aug 13, 18 05:56 AM

    The KLCI is currently at resistance territory after a nice big rally. I would consider a sideways trading a possible scenario at the moment.

    Read More

  5. Technical Analysis Lessons From AAPL's 15 Min Stock Chart

    Aug 13, 18 05:22 AM

    In this lesson, we will learn how AAPL's 15 Min stock chart formation help to send the stock higher for 2-3 days to give traders a nice swing trading opportunity.

    Read More

New! Comments

Have your say about what you just read! Leave me a comment in the box below.