Bearish Engulfing Candlestick Pattern
Bearish Engulfing Candlestick Pattern is formed generally at the end of an uptrend, or near a potential resistance. Bearish Candlestick pattern is a reliable reversal pattern and since it is formed at the top of an uptrend it is also known as a top reversal or bearish reversal pattern. Basically, this pattern is made up of two candlesticks or can say it takes 2 days for this pattern to be formed.
Day 1. On day one a small bullish candlestick is formed.
Day 2. On the second day, a larger bearish candlestick is formed such that the body of the bearish candlestick completely overshadows or engulf the body of the bullish candlestick formed on Day 1.
For this pattern to be formed it is extremely important that:
Bearish Engulfing Candlestick Pattern
1. The open price of the Day 2 candlestick is higher than the close price of Day 1candlestick.
2. The close price of the Day 2 candlestick is lower than the open price of Day 1 candlestick.
Bearish Engulfing Candlestick Pattern is a very common trend reversal pattern. Though it is not easy to pick this pattern if done correctly one can easily catch the trend reversal/selling Signal, and it’s highly rewarding.
The strength of this pattern is increased by the size of the engulfing candlestick. The bigger the engulfing candlestick the more significant is the pattern. The first day the small bullish candle may look like a continuation of an uptrend but its small size may show that the bearish signal is weakening.
This is confirmed by the Long Bullish candlestick formed the next day. The larger candlestick tells a lot more about the market sentiments that the bear is taking over the bulls.
Bearish Harami Candlestick Pattern
Bearish Harami Pattern is formed near a resistance or at the end of an uptrend. This pattern is a trend reversal type and its reliability is low if watched alone. However, if considered with another technical indicator may a strong signal for the investors. This pattern is composed of two candlesticks, formed on two consecutive days.
First Day: A Long bullish candle is formed, shown in green in the fig below.
Second Day: A small bearish candle is formed shown in green in the fig below.
The pattern got its name because in Japanese: Harami means pregnant or body within. In this pattern, a small bearish(red) candlestick is formed on day 2 which lies within the body of the bullish (green)candle formed on day 1.
For Bearish Harami pattern to be formed it is very important that:
a. The open price of the Day2 candlestick is lower than the close price of Day1 candlestick.
b. The close price of the Day 2 candlestick is Higher than the open price of Day 1 candlestick.
Bearish Harami pattern is considered to be a signal of a trend reversal, giving investors indication that the bull is weakening and there is a possibility of a bear to take over the market.
The size and location of the bearish candlestick formed on Day 2 will tell more about the magnitude of this pattern. The bigger bullish candle of Day1 and a comparably small bearish candle of Day 2 represents strong trend reversal. Similarly, if the Bearish candle formed on Day 2 is located near the bottom of the Bullish candlestick formed on Day 1 then one can say the downtrend may be slow, but if it lies near the top side of the bullish candle one can say the reversal is stronger or more convincing.
Precautions Taken while using this pattern?
1. Further confirmation of this pattern is required which can be done by integrating this pattern with the study of other technical indicators.
2. Like if this pattern is formed at the top of an uptrend together with the oversold condition then it further strengthens strong a sell signal. this pattern has no validity if formed at downtrend.
Volume: Volume plays important role in validating this pattern. A high volume or a gap down next day(Day3) reconfirms further trend reversal.
The bearish Harami could be the first two days of bearish Three Inside Down.
Dark Cloud Cover Candlestick Pattern
The Dark Cloud Cover Candlestick Pattern is a bearish candlestick reversal pattern, of moderate reliability and is formed at an uptrend, or at a possible resistance. This pattern is just opposite of Piercing Line candlestick pattern. This pattern consists of two candlesticks or one can say it takes two days for this pattern to form.
Day 1: Day one candlestick is the continuation of the uptrend therefore bullish in nature and it has little significance by its own formed in an uptrend.
Day 2: On Day two a bearish candlestick is formed, which almost covers half the body of the bullish candle formed on Day 1.
Dark Cloud Cover got its name because of it looks like a dark cloud over a brightly going uptrend.
For this pattern to be valid it is extremely important:
1. The open price of the Day 2 candlestick is higher than the close price of Day 1 candlestick.
2. The close price of the day 2 candlestick must close below the 50% of the body of the day 1 candlestick. That means it should cover atleast half of the body of Day 1 candlestick.
Though this pattern can occur anywhere like in an uptrend, downtrend, sideways market etc. It is only valid and reliable when formed in an uptrend. Piercing Line Candlestick Pattern is an indication that the bulls are losing its control and bears are taking over it. However one has to wait for the third day, for this pattern to confirm.
The Strength of this pattern is maximized if the day two candlestick covers more than the 50% of the bearish candlestick formed on Day 1. The more it covers more strong is the bearish signal. The formation of the bearish candle or a gap down on third day further confirms this pattern reliability.
Evening Star Candlestick Pattern
Evening Star Candlestick Chart pattern is a bearish reversal pattern of high reliability. This pattern is only valid when formed at an uptrend or at a possible support. This pattern is just opposite of Morning Star Candlestick Pattern. This pattern is also a three-day pattern or formed by three continuous candlesticks of the following characteristic.
Day 1: On the first day, a large bullish candlestick is formed, representing a further continuation of an uptrend.
Day 2: On the second day, a small candlestick either bullish or bearish, is formed which gaps up from the first candlestick formed on Day 1.
Day 3: On the third day a large bearish candlestick is formed which gaps down from the candlestick formed on Day2. It opens higher than the close of the Day 2 candlestick and closes atleast near or above the he center or midpoint of the candlestick formed on Day 1.
For this pattern to be formed it is extremely important:
a. It should be formed in an uptrend.
b.The open price of the Day 2 candlestick is lower than the close price of Day 1 candlestick.
c.The close price of the Day 2 candlestick is also lower than the open price of Day 1 candlestick.
d. The close price of the Day 3 candlestick is higher the close price of Day 2 candlestick should be at least cover 50% or more of the Day 1 candlestick.
The strength of this pattern depends a lot on the size of the candlestick. The bigger bullish candlestick formed on day 1 in continuation of the previous uptrend, shows the market sentiments is strongly under the control of bulls.
The second-day formation of the small candlestick (either bullish or bearish or neutral) with a gap up indicates that the bulls are still holding the position but they are not able to push the price much higher, further indicates that the bear’s strength is loosening. A bearish candlestick on day 2 speaks a lot more about bulls weakness.
Formation of the long bearish candlestick on Day 3 confirm evening star pattern and shows that bears are taking over the market over the bulls with strength. If the third-day candlestick opens with a gap down and closes below or at least near the midpoint of the Day 1 candlestick body, it indicates a strong trend reversal and a sell signal.