The (n)-shaped pattern has five steps to its development.
- The market or individual stock should be near all-time highs, forming an ascending wedge to new highs. This move up should be choppy, meaning one day up, the next day down, yet still making new highs.
- A sharp drop should establish a new low, usually caused by some kind of panic as the result of a news event or another catalyst.
- After the steep drop, the stock or market will find a bottom and then make a choppy secondary move up to the prior highs it established very recently. It is important to note that this move up should be like a slow grind and generally will be on low volume.
- A second sharp drop will follow, returning the stock or market back to the recent lows established on the first drop. Generally, there will be a small bounce at this level as it is a major support level.
- The bounce will not go very far and will look like a bear flag, meaning it will be moving higher but will only make shallow new highs, which will generally lead to a further secondary breakdown.