Bearish Engulfing: A Signal That Sellers Are Taking Control
Table of Contents
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always do your own research before making investment decisions.
Overview of the Bearish Engulfing Pattern
The bearish engulfing is a two-candle reversal pattern that forms after a price uptrend. It consists of a smaller bullish candle (green) followed by a larger bearish candle (red) that completely engulfs the body of the previous candle. This shift signals increasing selling pressure and a possible trend reversal.
The psychology behind the pattern is simple: bulls push the price higher in the first candle, but then bears take over with a forceful downward move in the second candle, wiping out the gains and more.
This pattern is more significant when it appears at the top of an uptrend, near resistance levels, or after a period of overbought conditions.
Pattern Breakdown
Here’s what to look for when spotting a bearish engulfing pattern on a chart:
- Candle 1: A small-bodied bullish (green) candle during an existing uptrend.
- Candle 2: A larger bearish (red) candle that opens above the previous close and closes below the previous open, engulfing the entire body of Candle 1.
- Volume: Often, the second candle is accompanied by a spike in volume, showing increased bearish conviction.
Key characteristics:
- Appears after an uptrend or upward move
- The second candle's real body completely covers (engulfs) the first candle’s body
- Wick size may vary, but the focus is on the candle bodies
Signal Criteria
Some traders apply additional filters for stronger signals:
- Candle 2’s body is at least 1.5x the size of Candle 1’s body
- Pattern appears at a resistance level, Fibonacci retracement zone, or after divergence on RSI
How to Interpret the Bearish Engulfing Pattern
The bearish engulfing is considered a reliable bearish reversal signal, especially when it appears in the right market context.
Bullish momentum weakens → Sellers step in → Trend shift may begin
What it means for traders:
- Short-term outlook: A potential price drop or pullback
- Medium-term outlook: Could signal a broader trend reversal if confirmed by additional bearish candles
How traders use it:
- Enter short positions after confirmation (e.g., next candle closes lower)
- Exit long positions to lock in gains
Combine with other indicators like RSI, MACD, or volume analysis for better confirmation.
Conclusion
The bearish engulfing pattern is a classic signal that often marks the end of an uptrend and the beginning of a potential downtrend. While it’s a strong visual cue, its accuracy improves when used with support/resistance analysis, technical indicators, or volume confirmation.
Before trading on this signal alone, look for:
- Additional bearish confirmation candles
- Confluence with other indicators
- Proper risk management with stop-losses placed above the high of the engulfing candle
Next Steps
- Learn about the Morning Star, the bullish mirror image of the bearish engulfing pattern, in our next article.
- Explore more technical indicators such as RSI, MACD, and moving averages to combine with candlestick signals.
- Practice identifying bearish engulfing patterns on a live chart using free charting tools.
By integrating the bearish engulfing pattern into a broader trading strategy that includes confirmation signals and risk management, traders can improve their ability to anticipate price reversals and make more confident decisions.
Explore Related Articles:
- A Beginner’s Guide to Candlestick Charts
- Rising Bullish Hammer Candlestick Pattern Explained
- Shooting Star (Falling Hammer) Candlestick Pattern Explained
- Bullish Engulfing: A Signal That Buyers Are Taking Over
- Morning Star Pattern: A Signal That Buyers Are Stepping In
- Evening Star: A Signal That Sellers Are Stepping In
- Golden Cross: A Signal That Bullish Momentum Is Building
- Bearish (Death) Cross: A Signal That Momentum May Be Turning Against the Market
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- What Is the MACD Indicator? A Guide to Moving Average Convergence Divergence in Crypto
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