What is a Bearish Engulfing Pattern?
A bearish engulfing pattern is a technical chart pattern that signals lower prices to come. The design consists of an up (white or green) candlestick followed by a large down (black or red) candlestick that eclipses or "engulfs" the smaller up candle. The pattern can be important because it shows sellers have overtaken the buyers and are pushing the price more aggressively down (down candle) than the buyers were able to push it up (up candle).
The pattern gets its name because the second candle engulfs the first candle.
The Bearish Engulfing candlestick pattern is considered a bearish reversal pattern, usually occurring at the top of an uptrend.
To identify the Bearish Engulfing pattern, look for the following criteria:
- There should be a definite uptrend in progress.
- The first candle must be a white (bullish) candlestick.
- The second candlestick must be black (bearish).
- The black candlestick must completely cover the white candle (i” engulf” it). This means that the top of the black candle’s body must be above the top of the white candle’s body, and its bottom must be below the bottom of the white candle’s body.
The opposite pattern of the Bearish Engulfing pattern is the Bullish Engulfing pattern.
This difference is that the Bullish Engulfing pattern occurs in a downtrend followed by a down (black or red) candle engulfed by a white candle.
Before the Bearish Engulfing pattern occurs, the price must be in a definite uptrend.
The market gaps up but then selling pressure appears and forces the price to fall so hard that the candle closes lower than the previous up (white or green) candle.
This second candle signals a shift in sentiment, and a trend reversal is likely.
The pattern has more excellent reliability when the open price of the engulfing candle is well above the close of the first candle and when the engulfing candle is well below the hollow of the first candle.
The larger the second candle is compared to the first candle, the stronger the bears have become.
To analyze a specific Bearish Engulfing pattern, observe the following:
- If the preceding uptrend is significant, the way will likely be effective.
- The higher the top and the lower the bottom of the engulfing candlestick’s body, the clearer the pattern is.