As of 02/21/2025   Indus: 43,428 -748.63 -1.7%     Trans: 16,034 -430.64 -2.6%     Utils: 1,023 +3.75 +0.4%     Nasdaq: 19,524 -438.35 -2.2%     S&P 500: 6,013 -104.39 -1.7%	YTD  +2.1%    +0.9%    +4.1%    +1.1%    +2.2%	Targets    Overview: 02/13/2025     42,500 or 45,000 by 03/01/2025   16,900 or 15,800 by 03/01/2025   1,050 or 970 by 03/01/2025   19,200 or 20,500 by 03/01/2025   5,875 or 6,200 by 03/01/2025
Chart Pattern Indicator: on 2/19/25

As of 02/21/2025   Indus: 43,428 -748.63 -1.7%     Trans: 16,034 -430.64 -2.6%     Utils: 1,023 +3.75 +0.4%     Nasdaq: 19,524 -438.35 -2.2%     S&P 500: 6,013 -104.39 -1.7%	YTD  +2.1%    +0.9%    +4.1%    +1.1%    +2.2%
Targets    Overview: 02/13/2025     42,500 or 45,000 by 03/01/2025   16,900 or 15,800 by 03/01/2025   1,050 or 970 by 03/01/2025   19,200 or 20,500 by 03/01/2025   5,875 or 6,200 by 03/01/2025
Chart Pattern Indicator: on 2/19/25

Bulkowski on the Bearish 2-Step Reversal

Initial release: 2/19/25.

This article discusses the bearish 2-step reversal chart pattern, including what to look for and how it behaves in stocks and exchange traded funds. It's rare to find it in ETFs and cryptocurrency.

Bearish 2-Step Reversal: Overview

Bearish 2-Step Reversal: Identification Guidelines

The following table shows the identification rules, and are self-explanatory. Also refer to the adjacent chart.

Bearish 2-Step Reversal: Stock Performance

Before I discuss the performance after a bullish breakout, the bearish 2-step pattern is, after all, bearish.

I tested it in stocks and found that 482 trades with downward breakouts in bull markets with upward price trends leading to the pattern, each trade lost an average of $129.57. The pattern in downtrends were worse, losing an average of $155.71 per trade.

Although this pattern breaks out downward 74% of the time, it does not suggests a meaningful downtrend will follow.

For tests in stocks, ETFs, and cryptocurrency, I used these rules.

• Upward breakouts only.
• Entry: A buy stop placed a penny above the top of the chart pattern (above the highest price bar in the pattern).
• Loss Exit: A stop loss order placed a penny below the lowest price bar in the pattern.
• Target exit: Place a limit order to sell at twice the height of the pattern (from highest bar to lowest one) added to the price of the highest bar.
• For additional methodology details, see the link.

The chart shows an example trade in Adobe. The red box highlights the 2-step reversal pattern.

An upward breakout triggers a buy stop to enter the trade two days after the pattern completes. However, the move higher doesn't take the stock far enough to reach the target exit before the stock tumbles and triggers the stop loss order.

The 2-step pattern significantly underperforms the benchmark in uptrends, but it's also rare. Additional samples might boost performance but other small patterns based on this type of reversal (a higher high but a lower close) do not test well.

Downtrends beat the benchmark, but with only 134 trades. Because of the wide performance results between uptrends and downtrends, I would be cautious relying on this pattern.

Bearish 2-Step Reversal: ETF Performance

The pattern appears less than 30 times in the ETFs I looked at, which is too few to report on. Upward breakouts substantially underperformed the benchmark. The pattern in downtrends also underperformed but only by a little (less than $1).

Bearish 2-Step Reversal: Crypto Performance

This pattern is too rare (16 trades) to appear much in cryptocurrencies. There were not enough trades to discuss.

-- Thomas Bulkowski

See Also

• How did I test small patterns in stocks, ETFs, and crypto currency?
• Small pattern performance.
• Updated daily list of short patterns.
• 2-step, bullish, 5-bar reversal pattern
• 5-bar candlesticks

Antonym: Opposite of the word you're trying to think of.