Bearish Engulfing Patterns

Bearish Engulfing Pattern

4 min read

Bearish engulfing patterns happen typically at the top of uptrends. They are a two candlestick pattern setup; first candle is a small bullish candle followed by a second larger bearish candle that completely engulfs the first candle. Look for price to fail second candle and hold to confirm bearish continuation. 

A bearish engulfing pattern consists of two candlesticks that form near resistance levels where the second bearish candle engulfs the smaller first bullish candle. Typically, when the second smaller candle engulfs the first, price fails and causes a bearish reversal.

The bearish engulfing pattern signals the possible end of a bullish trend. Confirmation is needed for this pattern to set up and break.

Made up of two candlesticks; first candle is a small bullish candlestick with small wicks. While the second candlestick is a bearish one that engulfs the small bullish one.

The name of the chart pattern implies the what the future may bring. A bearish trend engulfing the previous bullish one to reverse it.

Bearish Engulfing Patterns

This pattern typically occurs at the top of a bullish trend. Read this signal as a peak or a slowing down in it is move up.  Often good to consider the prices of the stock that occurred before the bearish engulfing candle as well as after it.

Bullish momentum is coming to an end when bearish engulfing candles form; especially when second candles price opens higher than the first candles price. The more the second candle falls down, the more significant the downtrend signal is. This move should be lower than the first candle.

Main Points You Need to Know:

  • Can happen on any time frame, but more significant if it occurs after the stock in is a trend up.
  • The body of the stick, not the wicks is what matters 
  • The body of the declining candle must engulf the candle before it that was a green candle
  • Ideally, both candles are big candles compared to the other candles around them and both have significant volume.
  • The bigger the candles the more solid the setup
  • If the market is choppy, it is not as strong a signal.
  • Look for trending markets to get better trade signals from this candlestick pattern

Technicals

When they occur at the top of an uptrend; one of the most important factors of a reversal. Bearish engulfing candles can happen anywhere on a chart but the most powerful reversal signal is when it forms at the top on a trend or a peak. Pair this with other technical analysis for even more information; such as previous support/resistance areas, moving averages, and current volume. Adding in all that information will help create a stronger game plan.  

The pattern has formed at a key resistance level that the bulls cannot break. The bears do not want price to climb anymore so they step in. The highs of the bearish engulfing candle should be the highs of the pattern.

The next candle after the bearish engulfing pattern close lower than its predecessors. That is a pretty significant signal that the trend reversal is taking place. It should start making lower lows.

How to Trade Bearish Engulfing Patterns

  • Watch for 1st bullish candlestick to form
  • Next, watch for 2nd larger candlestick to engulf 1st smaller bullish candle
  • Then, watch for 3rd candlestick to fall below 2nd
  • Traders take a short position once price breaks below the 2nd candlestick
  • Place stop above the top of the 2nd candle
  • Some traders take a long position once price breaks above 2nd candle
  • Then place stop below the 2nd candle
  • Pair this strategy with the ABCD pattern

Related Articles

Failed Bear Flag

Failed Bear Flag

A failed bear flag turns into a bullish pattern instead of a bearish one. When learning about flags, a bear flag is always a bearish

Read More »
Heikin Ashi

Heikin Ashi

Have you ever wondered, “What is heikin ashi”? Well, you’re in good company; I had no idea either until I started trading. What I found out

Read More »
Megaphone Patterns

Megaphone Pattern

The megaphone pattern is another chart pattern used for technical analysis. This is one of my favorite patterns because there is usually a lot of

Read More »

Claim your 100% FREE Trading Courses. This is strictly for people who are hungry  for knowledge. We’ll teach you how to trade!

Rated Best Value by Investopedia

FREE ONLINE TRADING COURSES

If you’ve looked for trading education elsewhere then you’ll notice that it can be very costly.

We are opposed to charging ridiculous amounts to access experience and quality information. 

That being said, our website is a great resource for traders or investors of all levels to learn about day trading stocks, futures, and options. Swing trading too! 

On our site, you will find thousands of dollars worth of free online trading courses, tutorials, and reviews.

We put all of the tools available to traders to the test and give you first-hand experience in stock trading you won’t find elsewhere.

Our content is packed with the essential knowledge that’s needed to help you to become a successful trader.

It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career.

Invest the proper time into your Trading Education and don’t try to run before you learn to crawl. Trading stocks is not a get-rich-quick scheme. It’s not gambling either, though there are people who treat it this way. Don’t be that person! 

STOCK TRADING COURSES FOR BEGINNERS

The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms. We provide our members with courses of all different trading levels and topics.

If you’re a beginner, intermediate level, or looking for expert trading knowledge…we’ve got you covered. 

We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. Free.

Just choose the course level that you’re most interested in and get started on the right path now. Become a leader, not a follower. When you’re ready you can join our chat rooms and access our Next Level training library. No rush. We’re here to help.

Click Here to take our free courses.