How to Identify & Trade Bearish Candlesticks

Bearish candlesticks come in many different forms on candlestick charts. There are also bullish candlesticks. Bearish candles show that the price of a stock is going down. They are typically red or black on stock charts. Bullish candles show that the price of a stock is going up. They are typically green or white on stock charts. Watch our video on how to identify and trade bearish candlesticks.

What Is a Bearish Candlestick Pattern & How to Identify These Candlesticks?

Bearish candlesticks make up part of the foundation of all stock charts. A bearish candlestick forms when the bears try to push price down. The close price is lower than the opening price. They are typically either red or black on a chart. Bearish candlesticks are one of 2 different types of candlesticks that form on stock charts. The bullish candlestick and bearish candlestick.

Bearish Candlesticks

Watch our video above to learn how to identify bearish candlesticks and the role that they play. Bearish and bullish candlesticks are created by price action and together they make up charts. In fact, Japanese rice trader Homma developed candlesticks after he saw a correlation between the price of rice and emotions. Emotions will always move markets. Hence the most powerful market moving emotions being fear and greed.

The Bearish Tug of War In Candlesticks

Bearish candlesticks tell you when selling power is coming in. The markets are a tug of war between the bulls and the bears when stock trading. As a result, one side is always going to win. Some days the bulls win. Some days the bears win. Each candlestick tells a unique story.

When the market or a stock is bearish, price is going down. Shorts and put options buyers/sellers are riding those prices down.

They come in many different forms, patterns and sizes. Their uniqueness and combinations give a hint as to what may happen in the future. As a result, that’s why it’s so important to decipher their meaning. Take our candlesticks patterns course.

Bearish Candlesticks

What Is a Bearish Hammer Candlestick?

Bearish Candle

A bearish hammer candlestick looks like a regular hammer but instead of price going up, it goes down. It has a small candle body and long lower wick. Typically it’s either red or black on stock charts. This is known commonly as an inverted hammer candlestick.

Each candlestick is showing the price movement for the day. The opening price, closing price, the high of day and the low of day. The color of the candlestick tells you if the opening or closing price was higher.

Bearish candlesticks have a lower closing price. The real body is the filled part of the candlestick. The shorter the real body is, the more indecision the stock is in.

The lines coming out of the top and bottom of the candlesticks are wicks (top) or tails (bottom). They are also referred to as shadows. The top wick is the high of the day. The bottom shadow or tail is the low of the day.

They show you the selling pressure coming in. When a bearish candle forms the price of the stock goes down causing the closing price to be lower than the opening price. In fact, we teach how to trade them on our live daily streams. Check out our trading service to learn more.

Bearish Patterns

Bearish Candlesticks

Bearish candlesticks patterns form over a period of time. As a result, these patterns give you insight into the future movement of a stock or market. There is always going to be a continuation or reversal of a pattern or trend.

Paying attention to the patterns keep you informed of how to buy. Whether it’s going long with a stock or buying calls. As well as shorting or buying puts.

A head and shoulders pattern also known as an F you pattern is a bearish reversal pattern. You get a left shoulder, head and right shoulder along with a neckline. The neckline is support. As a a result, if the stock breaks that support, it’s moving into a downtrend. You always want to wait for a confirmation of a reversal before buying or shorting. You don’t want to get caught in a fake out. Patterns are always forming on stock charts. That’s why it’s important that you can find them. Download our candlesticks charts e-book.

How to Trade Bearish Candlesticks

  • Knowing how to trade bearish candlesticks is quite simple: 
  • Traders take a short position when price breaks below the low of the bearish candlestick.
  • They use a candlestick close above the high as a stop level.

Day Trading Bearish Setups

When you day trade, you’re buying and selling a stock multiple times a day. Day trading requires you to be fast and precise. If you’re not, you could lose on a trade.

The intraday charts along with technical indicators have the buy and sell signals and move much faster. So whether you’re trading penny stocks or the larger cap stocks, you need to be able to spot patterns quickly.

Bearish Candlesticks Patterns

Swing trading strategies are different. When you’re swing trading you’re holding a stock at least overnight. Swing trades typically last 3-6 days up to 2 weeks. The daily chart is the best chart to use when looking to make a swing trade.

What Does a Bearish Reversal Candlestick Mean?

A bearish reversal means that a stock may be showing signs of going into an uptrend and reversing from a current downtrend. Signs of a bearish reversal may be a hammer or doji candlestick found at critical support levels. Many of the times it completes a morning star pattern to confirm start of uptrend.

Because you’re holding for a longer period of time you want to see the patterns forming on a larger scale. Bearish candlesticks will tell you whether to go long and buy call options as well as going short and buy put options.

The Bottom Line

Using bearish candlesticks along the technical analysis will tell you how to trade. Knowing how to read them gives you the advantage over other traders. Study them to become the best trader you can be. Take our free online trading courses for more help.

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