The trend reversal, or to be precise the exact point when the trend reverses, is the ideal moment to enter the trade. So many traders ask how to recognize it’s coming? There is a candle pattern that forms at the top of the upward trend and it does indicate a potential reversal of the trend. It is called the bearish engulfing candlestick pattern.
The good news is the bearish engulfing pattern is easy to recognize and really effective. In this guide, I want to tell you more about it.
How to identify the bearish engulfing candlestick pattern at Olymp Trade
There are a few conditions that have to be met so that it is possible to identify the bearish engulfing pattern.
- Number 1. There has to be an upward trend. The pattern that we are talking about forms during the uptrend when the trend is being exhausted, indicating a possible change in market direction.
- Number 2. The bullish candle cannot be bigger than the following bearish one. Remember that the green candle cannot have a form of a Doji because they can be easily absorbed so it wouldn’t mean anything.
- Number 3. The bullish candle must be fully engulfed. And the bigger the bearish candle, the more selling pressure is visible on the chart.
The bearish candle’s open is higher than the high of the earlier candle, and the close of the bearish one is lower than the low of the bullish candle. In other words, the body of the bearish candle fully covers the whole previous candle. But on liquid markets on an intraday scale, this kind of situation is unlikely. That is why it is customary that it is enough if the bearish candle body covers the previous candle’s body.
You will find the bearish engulfing candlestick pattern at the top of an upward trend when bears eventually gain control over the market.
Employing the bearish engulfing pattern in trading at Olymp Trade
Identifying the pattern is not much complicated. Remember, it forms at the peak of the uptrend when the bears take over the market. A bearish engulfing pattern signifies the reverse in the trend. Wait till the bearish candle forms fully to confirm the beginning of the downward trend. Also, the last bullish candle cannot be a doji for a bearish engulfing pattern to develop. Once all conditions are met, you should enter a sell position.
Above you can see an interesting example of the bearish engulfing pattern. Red candle body covers not only the previous body but also 4 more. This kind of signal is a very strong confirmation of a trend reversal.
Learn and practice using the bearish engulfing candlestick pattern. There is a free demo account at Olymp Trade. Open one, if you haven’t yet, and share your thoughts with us.
Best of luck!
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