Table of Contents

Pattern Bearish Engulfing

Bearish Engulfing is a powerful bearish reversal candlestick pattern consisting of two candles that forms in an uptrend. The first candle is white (bullish), followed by a black (bearish) candle, the body of which completely engulfs (covers) the body of the previous candle.

Key Features:
  • First candle is white with opening price lower than closing price (O < C).
  • Second candle is black with opening price higher than closing price (O > C).
  • Opening price of the second candle is higher than the closing price of the first candle (O > pC).
  • Closing price of the second candle is lower than the opening price of the first candle (C < pO).
  • The body of the second candle completely engulfs the body of the first candle.
  • Forms in an uptrend.

Bearish Engulfing Pattern

Interpretation

Bearish Engulfing is considered one of the most reliable signals of an uptrend reversal:

  • The first candle confirms the existing uptrend and shows control by buyers.
  • The second candle demonstrates a sharp transition of control to sellers, who not only erase the profit of the previous period but also create a significant decline.
  • The complete engulfing of the previous candle body symbolizes a complete shift in prevailing sentiment from bullish to bearish.
  • The larger the size of the second candle compared to the first, the stronger the signal.
  • If the pattern forms at a resistance level or after a prolonged uptrend, its significance increases.

Trading Strategies

Bearish Engulfing provides excellent opportunities for entering a short position:

  • Enter a short position after the pattern formation, usually at the opening of the next candle.
  • Place a stop-loss above the high of the second candle of the pattern.
  • Target profit can be set based on previous support levels, risk/reward ratio, or using technical indicators.
  • High trading volume during the formation of the second candle significantly increases the reliability of the signal.
  • Combine with other indicators, such as RSI in the overbought zone or divergence on oscillators, to increase the probability of a successful trade.
  • Can also be used as a signal to close existing long positions.
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