Physical Description of Bearish Engulfing:

The Bearish Engulfing pattern is a top reversal pattern that forms at the end of an established uptrend. This is a two candle pattern that forms with the first candle being a white candle and the second candle is black in which the real body of the black candle totally “engulfs” the previous days’ white candle real body.

Bearish Engulfing Pattern Criteria:

• 2 candle pattern

• Appears only in the context of an uptrend

• 1st candle is white

• 2nd candle has the following characteristics:
• Black
• Opens above the 1st candle real body
• Closes below the 1st candle real body

Bearish Engulfing Market Psychology:

Bearish Engufling patterns are known for indicating a strong possibility of a bearish price reversal of the previous trend. This candlestick pattern only can appear on the chart during an uptrend.

In the previous uptrend, buyers have been in control of price action and the result is an uptrend in price. The 1st candle of the pattern shows continue strength by the buyers due to the fact that the candle is white. The 2nd candle opens higher than the previous days’ close which demonstrates that the buyers are continuing to maintain control of price action by taking it higher.

However, at the conclusion of the 2nd candle the presence of a large black candle that completely “engulfs” the previous days’ candle indicates that the strength of the previous trend has been reversed. Not only have the sellers taken away control of the price, but they have taken out the previous days’ opening price.

This formation is one of just a few that is what is known as “self confirming.” With the close of the day and the presence of the large black candle, the previous trend has been reversed.

Other “self confirming” formations include the bullish Morning Star Candlestick Pattern and the bearish Evening Star Candlestick Pattern.

Bearish Engulfing Pattern Trading Implications:

The fact that the sellers were able to wrestle control of price away from the buyers after an established uptrend shows a strong reversal of power. This pattern indicates a high degree of reversal in comparison to most other Candlestick Patterns and investors and traders should use this information to better their trading decisions.

Factors that Increase The Strength Of a Bearish Engulfing Pattern:

• The larger the gap up from the first candle to the second indicates a higher probability of reversal

• Higher than normal volume (150%) on the second day indicates conviction of the trend reversal

• The 1st candle develops with a small real body or the presence of a Doji (trend running out of steam)

• The 2nd candle engulfs both the real body and the upper and lower shadows of the previous candle