Introduction To Candlestick Patterns

In technical analysis a candlestick pattern is a movement in prices shown graphically on a candlestick chart that some believe can predict a particular market movement. The purpose of this section is to educate you on different forms of candlestick patterns in layman’s terms, covering the basics you need to get started in using candlestick charts to analyzing stocks for potential investments.

The Bearish Engulfing Pattern

Bullish Engulfing Pattern thumb

A bearish engulfing pattern occurs in the candlestick chart of a security when a large candlestick fully engulfs the smaller candlestick from the previous trading session. This pattern usually occurs during an uptrend and is believed to signal of a top or the start of a bearish trend within.

As the name would imply this formation suggests a change in trend and favor for the bears, but should only be taking seriously when the stock is in a uptrend so be sure to ignore this pattern if the chart is in an down or sideways trend.

This is often a very bearish sign in short term trading as these up trending stocks have finally hit some resistance and often will put in a move to the down side on the following trading day.

Examples of what a bearish engulfing candle looks like on a chart:

Bearish Engulfing Pattern example 1

The Following Trading Session:

Bearish Engulfing Pattern example 2

Why is this worth looking at?

The Bearish Engulfing Pattern, and its bullish counterpart, the Bullish Engulfing Pattern, are both fantastic signals to learn to recognize. Not only do the both patterns occur quite often, but they both also have good track records of playing out in the proper direction.

Bearish Engulfing Scan

The Bearish Engulfing Scan is an algorithm-based scan of a select universe of US-listed stocks to find stocks that have made a bearish engulfing candle on the daily chart.