What Is a Bearish Engulfing Pattern? Example Charts Help Explain This Indicator

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A bullish engulfing pattern is a candlestick chart pattern that occurs when a small red candlestick is followed by a large green candlestick . So there we have 8 of the most common bearish candlestick patterns. Now you’re probably wondering how to spot them in real time. FCEL is a perfect example of this bearish candlestick pattern on the 5-min chart. Notice that the stock is trending downward from the pre-market. It is also struggling with VWAP, the red indicator line on the chart below.

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I am trying to make this code work for the watchlist, so I can scan multiple stocks by receiving a color indicator if there is an engulfing bar. Or the code is too complicated for the watchlist to execute? I am very new to this thinkscript and glad to find this forum. This way, there is no need to spend useless time in front of the screen when the markets do not move. In general, patterns that offer the possibility of using pending orders are considered more valuable than others.

Understanding the Endowment Effect in Trading

A https://trading-market.org/ engulfing pattern usually lasts for a few days to a few weeks, depending on the current trend and other market conditions. Other bearish reversal patterns to watch out for include the bearish dark cloud cover, bearish evening star, and bearish abandoned baby patterns. Three outside up/down are patterns of three candlesticks on indicator charts that often signal a reversal in trend. Cory Mitchell, CMT is the founder of TradeThatSwing.com. He has been a professional day and swing trader since 2005. Cory is an expert on stock, forex and futures price action trading strategies.

Perhaps the example below is not the perfect one to illustrate a fake engulfing pattern, because the market did bounce from the lows. However, the rules of a bullish engulfing are not respected. Nothing appears to suggest that a reversal is in place, because the market trend is confirmed by the first candlestick. However, the second candlestick fully retraces the first one, in a sign that the trend is reversing.


In the examples below, our chart colors are different than those above. We colored the Up days Blue instead of green, and Down days Pink instead of red. Discover the range of markets and learn how they work – with IG Academy’s online course.

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The understanding is that the amount of effort to push the stock to new highs is increasing. This gives the attentive trader an opportunity to capitalize by going short. In this intraday example with GME, we notice that the upward trend has been strong. For the first hour+ of the morning, there have been few, if any pullbacks. This gives us the confidence to go short, risking toward the highs. When it occurs, it will be at the height of a current uptrend — typically an extended trend.

Since a bearish engulfing should happen after the market has gone up for a while, it means that it will trade above its moving average. And as a consequence, we could make use of the moving average as a profit target. Volume is a great market sentiment indicator that nicely complements price data. While price data shows you the movements of the market, volume shows the conviction with which the market carried out those movements. Using volume the right way can provide good clues as to whether a signal is worth taking or not.

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In such a scenario if the stock price of ICICI Bank falls by 2%, it is not really necessary that HDFC Bank’s stock price should also fall exactly 2%. Probably HDFC Bank stock price may fall by 1.5% or 2.5%. Hence the two stocks may form 2 different candlestick patterns such as a bearish engulfing and dark cloud cover at the same time. The bearish engulfing pattern is a two candlestick pattern that appears at the top end of the trend, making it a bearish pattern. The thought process remains very similar to the bullish engulfing pattern, except one has to think about it from a shorting perspective. A bearish engulfing pattern can be used to protect investments by providing an early warning of a potential bearish reversal.

Bearish Engulfing Candle Pattern (Trading, Definition, Meaning and Strategies)

This is a rookie mistake, and if you got this one right, trading the engulfing patterns is straightforward. In the chart above of Verizon, a trader would probably entered on the day after the Bearish Engulfing Pattern because the selling continued. A bullish engulfing pattern can be a powerful signal, especially when combined with the current trend; however, they are not bullet-proof. Engulfing patterns are most useful following a clean downward price move as the pattern clearly shows the shift in momentum to the upside. If the price action is choppy, even if the price is rising overall, the significance of the engulfing pattern is diminished since it is a fairly common signal.

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For example, think about TCS and Infosys or ICICI Bank and HDFC Bank. Their bullish and bearish candlestick patterns forex movement is similar because they are more or less of the same size, have a similar business, and have the same external factors that affect their business. However, this does not mean their stock price movement would match point to point. For example, if there is negative news in the banking sector, banking stocks are bound to fall.

A bullish engulfing form occurs when a small red candle is followed by a large green candle, with the large green candlestick completely engulfing the small red one. The pattern can occur at the end of a downtrend or during an uptrend. It is important to wait for the candlestick pattern to form and confirm before entering a trade. You can create and backtest your ideas on the Streak platform to check the past performance and to optimize the strategy.

The Range of the Candles

Bullish engulfing pattern is a simple candlestick pattern which gives early indication of trend reversal from bearish to bullish. A bullish engulfing forms when a small red candlestick is followed by a large green candlestick, with the large green candlestick completely engulfing the small red candlestick. This pattern is a strong indicator of a reversal in the current trend.

  • The piercing pattern is very similar to the bullish engulfing pattern with a minor variation.
  • The bullish engulfing pattern can be used as a buy signal, telling traders when to buy a stock or other asset.
  • They can indicate that the market is about to change direction after a previous trend.
  • The pattern is made of two candlesticks, with the first one going in the same direction as the underlying trend.
  • Check this beautiful uptrend on the recent intraday chart of PLUG.
  • For the bearish pattern, it must first have a solid green or white bar continuing the uptrend.

As long as the real bodies are engulfed in my personal experience, I would be happy to classify the candle as a bullish engulfing pattern. Of course, candlestick sticklers would object to this but what really matters is how well you hone your trading skills with a particular candlestick pattern. No, a bearish engulfing pattern does not always indicate a bearish reversal. It is important to use other technical indicators and market analysis to confirm the validity of the signal given by the pattern.

At one point, the price rebounds strongly before it reverses again to continue trading lower, and ultimately printing the new short-term low. Does anyone have any way to scan for an engulfing pattern bullish? There are indicators on this site for bullish patterns, but there are no scanners for them. To start trading, open a FREE Demat account with Samco and apply your learnings to make money from the stock markets.

The only thing not convincing about this is the prior trend, else everything is perfect. The stoploss in both cases will be the highest high of P1 and P2, which in this case is at 221. Needless to say, once the trade has been initiated, you will have to wait until the target has been hit or the stoploss has been breached. Of course, one can always trail the stop loss to lock in profits. To exit the trade, we use the RSI as well, and get out when it’s above 80.


This pattern should be used in conjunction with other technical indicators to confirm the reversal. The best way to trade bearish candlestick patterns is by combining them with price action trading strategies. Bullish and bearish engulfing candlestick patterns are powerful reversal formations that generate a signal of a potential reversal. They are popular candlestick patterns because they are easy to spot and trade.

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Explore the range of markets you can trade – and learn how they work – with IG Academy’s free ’introducing the financial markets’ course. These alert signals go along with our stock watch lists. Our watch lists and alert signals are great for your trading education and learning experience. Rising wedge patterns are bigger overall patterns that form a big bullish move to the upside. They form by connecting 2-3 points on both support and resistanc… Candlesticks forming the patterns give you hints and warnings of a pattern breaking out or breaking down.

FUBO provides a fantastic opportunity to see this bearish candlestick pattern in action right at the opening of the market. Again, although the wicks are usually not considered a core part of the pattern, they can provide an idea of where to place a stop-loss. This is because it shows what the minimum price someone is willing to accept in exchange for an asset at that given point in time. So, if the current uptrend does reverse, you can see a clear exit point for your position. Bearish harami’s are a common bearish signal and learning how to spot them is pretty important. Stock charts are made up of single candlesticks, 2 and 3 day candlestick patterns as well as the big ones.

  • If you ever catch two trades like that in a little over a month of trading, it’s probably best just to take the next month off as whatever happens next won’t be half as rewarding.
  • In addition to being a chart type, candlesticks also form candlestick patterns, and one common candlestick pattern is bearish engulfing.
  • Besides, It does not include and cannot replace investment advice.

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Obviously, the prediction for a bearish candlestick pattern is to the downside. For this reason, it would behoove you to understand how to short sell, or to use these bearish strategies to know when to take profits or expect pullbacks in your long positions. This pattern produces a strong reversal signal as the bearish price action completely engulfs the bullish one. The bigger the difference in the size of the two candlesticks, the stronger the sell signal. It can signal an end of the bearish trend, a bottom or a support level.

Determine significant support and resistance levels with the help of pivot points. Yet, without responsibility and without particular suggestions for action. Besides, It does not include and cannot replace investment advice. In the event of big risks, you should perform such trades if you comprehend the aspect of the contracts. Check this beautiful uptrend on the recent intraday chart of PLUG. It appears there is nothing to stop the upward momentum.

As said, the bullish engulfing pattern is a reversal pattern. However, that doesn’t keep it from appearing when the trend is strong to the upside or in other conditions. A bullish engulfing pattern is more reliable when it occurs after a period of bearishness, as this indicates a potential shift in the market trend. The Engulfing pattern is formed by two candles, where the body of the first candle is “engulfed” by the body of the second candle. Engulfing patterns provide an approach for traders to enter the… BA provides us with another look at this bearish candlestick pattern in a different context.

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