Bearish Engulfing Pattern

The Bearish Engulfing pattern is a two-candlestick formation consisting of an upward (white or green) candlestick followed by a larger downward (black or red) candlestick that completely engulfs the smaller upward candle. The pattern gets its name from the fact that the second candle envelops the first one. It is recognized as a bearish reversal signal, typically appearing at the peak of an uptrend.

To identify the Bearish Engulfing pattern, the following criteria must be met: There should be a clear uptrend in place. The first candle must be a white (bullish) candlestick, while the second candlestick must be black (bearish). The black candlestick should entirely cover the white candle, meaning that the top of the black candle’s body is above the top of the white candle’s body, and its bottom is below the bottom of the white candle’s body.

The Bearish Engulfing pattern has a counterpart known as the Bullish Engulfing pattern. The main difference is that the Bullish Engulfing pattern occurs during a downtrend, where a downward (black or red) candle is engulfed by a white candle.

Before the Bearish Engulfing pattern appears, the price must be in a clear uptrend. The market may experience a gap up, but then selling pressure arises, causing the price to drop significantly, resulting in the candle closing lower than the preceding upward (white or green) candle. This second candle signifies a shift in market sentiment, indicating a potential trend reversal.

The pattern is more reliable when the opening price of the engulfing candle is significantly above the closing price of the first candle, and when the closing price of the engulfing candle is well below the opening price of the first candle. The larger the second candle is compared to the first candle, the stronger the bearish sentiment becomes.

To assess a specific Bearish Engulfing pattern, consider the following: If the preceding uptrend is substantial, the pattern is likely to be effective. The greater the height and depth of the engulfing candlestick’s body, the more potent the pattern is.