Chartered Market Technician (CMT) Practice Exam 2025 – Your All-in-One Guide to Exam Success!

In technical analysis, the concept of a bearish breakout refers to a situation where the price of a security breaks below a significant level of support. This breakout is often associated with increased selling pressure and a potential downward trend. Following a bearish breakout, a pullback is typically observed as the market may attempt to test the newly established resistance level created by the breakout.

A pullback occurs as some traders may look for a short-term opportunity to buy, thinking the price could rebound after the initial move down. However, if the primary bearish sentiment remains dominant, this pullback is generally viewed as a temporary retracement that allows traders to enter short positions at a more favorable price before the trend continues downward.

The occurrence of a pullback is significant as it provides a clearer entry point for bearish traders, increasing the likelihood that the price will resume its downward movement after the brief reversal. Therefore, the expectation of a pullback following a bearish breakout aligns well with the patterns observed in market behavior, reinforcing the notion that this is a common scenario in technical analysis.