Bearish engulfing candlestick : The signal for profitable exit from the market

Bearish Engulfing



If you have read my previous article of Bullish Engulfing candlestick pattern you can relate this article to it. Bearish Engulfing Candlestick Pattern is very similar to bullish engulfing with an opposite interpretation.

Yes, by the term opposite here it elaborates the functionality difference.

Bearish engulfing is better known for identifying the end of a bullish trend or you can say it another way that is a start of the bearish or down trend in the market.

Physical appearance bearish engulfing candlestick pattern

It is a 2 candlestick pattern. The first candlestick is bullish while the very next candle is bearish. The bearish candlestick engulfs the bullish candles completely signifying the active presence of sellers in the market.

The concept remains same as in bullish engulfing candlestick pattern.

The longer the engulfing the better the signal. In bearish, the candle should be long enough to completely engulf the bullish candlestick.

It must be taken into note that it works only when found after a proper uptrend. If such pattern is identified in between a trend or where trend does not exist, considering this pattern may lead to a false signal.

The top of a trend when finds resistance and bearish engulfing formation takes place you can place your trade.

A classical representation of bearish engulfing is shown here

bearish engulfing example_1_1
Source: Economic Times

Summing up

  1. 2 candlestick pattern
  2. The first candlestick is bullish and the second one is bearish
  3. Bearish candlestick completely engulfs the bullish candlestick
  4. Found after a proper uptrend
  5. Better the engulfing stronger the signal( longer bearish body)

 

Other patterns that can help you predict trend reversal

Doji candlestick pattern


Spinning Top candlestick Pattern

 

How to trade with Bearish Engulfing Candlestick

Bearish engulfing can help you to decide when to make an exit from the market. It is best for short term traders. The only thing you need to remember is to identify a proper trend that has found resistance level and trying to change its direction.

You need to know that bearish engulfing confirms the optimistic behavior of sellers. Sellers are again active in the market and buyers have lost their strength.

Here are few examples which may help you.

 

bearish engulfing example__1
Source: Economic Times



 

bearish engulfing example__2
Source: Economic Times



 

Technical indicators that can help you predict the trend reversal




Stochastic oscillator

RSI







Key elements to remember

  1. Works when identified after a proper uptrend
  2. Need to get confirmed with oscillator indicator or any other system
  3. Identify complete engulfing of a bullish candle by the bearish candlestick.

Bottom line

Learning candlestick won’t help unless you train your eyes to identify it properly it in right time. Whatever may be the case a confirmation signal must come which ever strategy you follow. You can use technical indicators for reconfirmation.

Bearish engulfing is easy to identify and interpret, what matters is how you follow its rules and manage your money.

Post Author: Sushant Putatunda

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