The Bearish Engulfing Candle is a powerful technical analysis tool used by experienced traders to identify potential reversals in the markets. It’s one of the most reliable candlestick patterns traders use to spot a potential bearish trend. If the Bearish Engulfing Candle is interpreted correctly, it can be used to profit from a bearish market.
What is a Bearish Engulfing Candle
A Bearish Engulfing Candle is a candlestick pattern suggesting a bearish reversal in the price movement. It’s composed of two successive candles. The first candle is typically bullish, meaning it’s an up candle. The second candle is typically bearish, meaning it’s a down candle. What makes this pattern so significant is that the second candle completely engulfs the first candle, signifying a strong bearish momentum in the market.
What does a Bearish Engulfing Candle tell you?
A Bearish Engulfing Candle tells traders that the bears are overpowering the bulls. This indicates that the market is likely to move lower in the short term. It’s important to note that this pattern does not guarantee a bearish move. It simply suggests that the bearish momentum may be stronger than the bullish momentum.
As you can see, the first candle is an up candle. The second candle is a down candle, and it completely engulfs the first candle. This suggests that the bearish momentum is stronger than the bullish momentum, indicating that the market may be heading lower soon.
How to use a Bearish Engulfing Candle
Upon Spotting a Bearish Engulfing Candlestick pattern, they should consider taking a short position in the market. But only after confirmation of a bearish move. To confirm the bearish move, You can use various technical tools or indicators like RSI, Moving averages, and Fibonacci Retracements. One way to confirm the bearish move is the wait for the price to close below the low of the bearish engulfing. A close below can be used as a reliable confirmation. You can take a short position on the confirmation by setting the stop loss order above the high of the Bearish engulfing and the previous swing lows as targets.
The Bearish Engulfing Candle is a powerful technical analysis tool used by experienced traders to identify potential reversals in the markets. When used correctly, it can be a great way to spot a potential bearish trend and take advantage of it. It’s important to remember that this pattern does not guarantee a bearish move. Still, it does suggest that the bearish momentum may be stronger than the bullish momentum, which is why you should always wait for confirmation before taking up a position.
Remembering all these candlestick patterns and spotting them in the live market can be tough and confusing. Here is a candlestick pattern cheat sheet that will help you be on top of your game