What is a Point & Figure Breakdown?
The Point & Figure Breakdown pattern is a red flag to the investor. The initial breakdown pattern, following an uptrend, is cautionary. Subsequently, a second breakdown pattern, provides sell signal confirmation. In turn, the investor takes necessary defensive action to avoid market losses.
Visually on the chart, the P&F breakdown entails a column of Os declining to one box beneath the preceding column of Os.
Conversely, the bullish breakout is to the upside, a buy signal.
PSYCHOLOGY OF THE POINT & FIGURE BREAKDOWN
Supply exceeds demand when a column Os drops beneath the preceding column of Os. In short, the stock owned by an investor becomes more plentiful. As a result, the price value is less. Naturally, dread is felt by the investor. Consequently, long positions are closed out to avoid further capital losses.
Double Bottom Point & Figure Breakdown
The Double Bottom is the Point & Figure breakdown sell signal in its simplest form. A straightforward box fill beneath the prior column of Os. Frequent and easy to identify.
We have devoted a whole page to the Double Bottom. There you will find numerous examples of this chart signal in the wild.
The Quadruple Bottom P&F breakdown pattern is an even broader evolution of the Double Bottom. However, they are rare but certainly an effective signal for short traders during a bear market, when they do appear.
Case studies of the Quadruple bottom may be found on the pattern's page.
The Bearish Triangle breakdown sell signal follows a tightening range. A narrowing range is often the precursor to an explosive breakdown. Consequently, this bearish breakdown is one of the fastest.
The psychology and tips for identification are all discussed on the Bearish Triangle page.
Bearish Catapult Point & Figure Breakdown
Finally, the Bearish Catapult is the most complex Point & Figure breakdown sell signal. The least frequent of all and perhaps one of the more different patterns to master given their volatile build up.
The Bearish Catapult page explores the pattern in detail, along with explanatory chart examples.