🎁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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The selling climax example from the 2020 SPY crash is a great reminder that panic often marks the end, not the beginning, of a downtrend. Those huge volume spikes combined with long lower wicks typically show that fear has peaked and stronger hands are stepping in. It’s one of the few times extreme volatility can actually signal opportunity rather than danger.
Overall, these two patterns complement each other well—one warns early, the other confirms late. I find both useful when evaluating trend strength and spotting potential reversal points.
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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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