- Sentiment: Bearish
- No. of candles: 2
- Direction: Reversal
What Is The Bearish Engulfing Japanese Candlestick Pattern?
The Bearish Engulfing pattern is a bearish reversal pattern that typically forms after an uptrend.
The Japanese candlestick pattern consists of two candles.
The first candle is a long white (bullish) candle, and the second candle is a long black (bearish) candle that completely engulfs the body of the first candle, opening above its high and closing below its low.
What Is The Psychology Behind The Bearish Engulfing Pattern?
The Bearish Engulfing pattern reflects a potential shift in market sentiment from bullish to bearish.
During the period of the first white candle, buyers are in control and push the price higher.
However, during the period of the second black candle, sellers step in and completely overwhelm the buyers, pushing the price back down to close below the opening price of the first candle.
This pattern indicates a possible loss of momentum for the bulls and hints at a potential trend reversal, as sellers attempt to regain control.
How To Trade The Bearish Engulfing Pattern?
To trade the Bearish Engulfing pattern, wait for confirmation by a subsequent bearish candle or another technical indicator.
The sell trigger occurs when the price moves and closes below the low of the second black candle, confirming the pattern.
Place a stop loss order above the high of the second black candle to protect against potential false breakouts or reversals.
As the price moves in your favor, consider using trailing stops or other risk management techniques to lock in profits and minimize potential losses.
Japanese Candlestick Charting Techniques, Second Edition
43% OffAdditional Tips
While the Bearish Engulfing pattern can be a reliable bearish reversal signal, it is essential to use it in conjunction with other technical indicators and chart patterns to confirm the trend change.
Additionally, be aware of the overall market context and consider factors such as support and resistance levels, as well as the strength of the prevailing trend.
Keep in mind that no single pattern can guarantee a trend reversal, and proper risk management is always necessary.
Continue to learn about Japanese candlesticks through books, such as Steve Nison’s “Japanese Candlestick Charting Techniques” and “Beyond Candlesticks.”