Tutorial on Bearish Engulfing Candlestick Pattern

What is Bearish Engulfing Candlestick Pattern?

Bearish Engulfing Candlestick Pattern is formed generally at the end of a uptrend, or near a potential resistance. Bearish Candlestick pattern is a reliable reversal pattern and since it is formed at the top of a uptrend it is also known as top reversal or bearish reversal pattern. Basically this pattern is made up of two candlestick or can say it takes 2 days for this pattern to be formed.

Day 1. On day one a small bullish candlestick is formed.
Day 2. On the second day a larger bearish candlestick is formed such that the body of the bearish candlestick completely overshadows or engulf the body of the bullish candlestick formed on Day 1.

For this pattern to be formed it is extremely important that:

1. The open price of the Day 2 candlestick is higher than the close price of Day 1candlestick.
2. The close price of the Day 2 candlestick is lower than the open price of Day 1 candlestick.

Bearish Engulfing Candlestick Pattern is a very common trend reversal pattern. Though it is not easy to pick this pattern but if done correctly one one can easily catch the trend reversal/selling Signal, and its highly rewarding.

The strength of this pattern is increased by the size of the engulfing candlestick. The bigger the engulfing candlestick the more significant is the pattern. The first day the small bullish candle may looks like a continuation of an uptrend but its small size may show that the bearish signal is weakening.

This is confirmed by the Long Bullish candlestick formed the next day. The larger candlestick tell a lot more about the market sentiments that the bear is taking over the bulls.

On combining this pattern with any other technical indicators like volume, Stochastic, RSI, MACD etc., further confirms this pattern and one can quickly pick up the trend change or the sell signal. For evidence of higher volume on the third day further strengthen this pattern reliability. Similarly a price gap down the next day (Day 3) support further, this pattern of trend reversal.

Now we have learnt what Bearish candlestick, its time to see them in real life. Our website provides free stock screening based on Bearish Engulfing Candlestick Patterns. It can be found at this link

Example of Bearish Engulfing Candlestick Pattern

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