Candlesticks Bearish Engulfing Pattern

Candlestick Charting – Bearish Engulfing Pattern

In today's lesson we will be covering the 'bearish engulfing pattern'. We have previously covered the opposite of this candlestick formation, the 'bullish engulfing pattern'. We will firstly describe this pattern, then detail its characteristics, then provide a practice application.

The bearish engulfing pattern is as the name suggests is a bearish signal. It comprises two candlesticks to be formed. The first is a smaller white or green candle while the second candle is a larger red or black candle.

This pattern is a reversal pattern, that is, there must be an existing prior uptrend in existance before the formation of this pattern. It's important that the second candle's body 'engulfs' the body of the first candle. Once this pattern has been identified it suggests that the stock will reverse it's uptrend. This pattern suggest that the bulls have been pushing the price higher for a while before the momentum have been exhausted and the bears seem ready to take over. A confirmation candle is needed to confirm the reversal on the following day, this may include another black candle, a gap down or a lower close than the second candle.

Practical Example

The chart below is of Bolnisi Gold, BSG, from September 2006 to February 2007.

Bolnisi Gold Bearish engulfing pattern

The 'bearish engulfing pattern is clearly highlight in yellow in the above chart.