Bearish Engulfing Candlestick Pattern

The Bearish Engulfing Candlestick is obviously a bearish signal, as the sellers have taken control. It is also a two candle signal. What makes the candle unique is the fact that at one point during the session, buyers moved the market above the previous candle’s range, but lost momentum. In the end, the market closes well below the previous candle, showing not only an attempt to break out to the upside, but a massive failure as well.

Because of this, it shows that the buyers simply could not keep the momentum and that the sellers are now firmly in control. As with most candlesticks, the higher the timeframe, the more important the signal is. It is also a signal that you should combine with resistance to get the most benefit from. After all, this shows that not only did they try to break out, but the absolutely failed and at a logical place.

Bearish Engulfing Candlestick

Bearish Engulfing Candlestick

Nonetheless, this can lead to a nice selling opportunity when the markets break below the bottom of the bearish candlestick during the next candle. This shows a continuation of the bearish momentum, which of course is exactly what you are looking for. With these candles, you can often see some type of trend change, or a continuation of a longer-term downtrend after a slight bounce. Either way, these are powerful candles as they show not only a failure, but a reversal and real strength to the downside.

Looking at the chart below, you can see that the bearish engulfing candle formed, and gave you a bit of a “heads up” that the Turkish lira was about to start falling against the Japanese yen. While this signal didn’t fire off right away, you can see that one week later, the market finally fell apart as we broke down below the bottom of the bearish engulfing candle. In fact, at the open on that Monday, we actually gapped lower, which of course is a massively bearish sign on its own. By using both of these very bearish signs, you were able to place a trade to the downside and follow the overall strength of the market. Once the bottom of the range was broken, the buyers were losing money. This means that they needed to sell in order to stop losing money – adding even more pressure to the downside.

A bearish engulfing signal

A bearish engulfing signal

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