Bearish Engulfing

 

A Bearish Engulfing pattern is a strong reversal candlestick pattern that signals a potential downtrend. And it is formed at the top of the trend characteristics:

1. Formation

• Appears at the end of an uptrend or a pullback in a downtrend.

• Consists of two candles:

• First candle: A small green (bullish) candle.

• Second candle: A large red (bearish) candle that completely engulfs the first candle's body.

2. Key Features

• The second candle opens higher than the first candle's close.

• The second candle closes lower than the first candle’s open, fully covering its body.

• A higher trading volume on the second candle strengthens the signal.

3. Market Psychology

• Initially, buyers try to push the price higher (gap up or slight rise).

• Sellers step in aggressively, driving the price lower.

• This shift in momentum indicates that bears are taking control.

4. Confirmation for Stronger Signal

• The pattern is more reliable when it appears at resistance levels or after a strong uptrend.

• A high volume on the second candle strengthens the bearish sentiment.

• A follow-up bearish candle after the pattern confirms the downtrend.

5. Trading Strategy

• Entry: After the close of the second bearish candle or a small retracement.

• Stop-Loss: Above the high of the engulfing candle.

• Take Profit: Based on support levels, Fibonacci retracement, or risk-reward ratio.