Bearish Engulfing pattern is one of the most reliable reversal candle patterns in technical analysis using the Japanese candlestick chart. This pattern is used by traders to identify a reversal from an uptrend to a downtrend.
This article will introduce what a Bearish Engulfing is as well as the characteristics and how to trade reasonably.
An overview video introduces Bearish Engulfing candle
What is Bearish Engulfing?
Bearish Engulfing is a bearish reversal candlestick pattern. It is used by many traders as an entry signal. When it appears at the end of an uptrend, the accuracy is very high.
Characteristics of a Bearish Engulfing
This pattern consists of 2 candlesticks.
– The first candlestick is a bullish candle.
– The second candlestick is a bearish one that engulfs the previous bullish candle vigorously.
A variant Bearish Engulfing candle includes:
– Two or three steady bullish candles with small bodies.
– A long bearish candle clearing the results of 2 or 3 previous bullish candles.
Bearish Engulfing meaning
When you look at this pattern, you will understand why it is called like that. The following red candlestick has covered and completely engulfed the previous green candlestick. When this candlestick pattern is formed, the bears (sellers) have dominated completely.
Bearish Engulfing is better than Bearish Pin Bar
Combining two candles to form a Bearish Engulfing (A) => The price overwhelmingly reverses from bullish to bearish (B) => Shooting Star candlestick (Bearish Pin Bar) (C).
Regarding the direction of the price, this pattern s is similar to the Bearish Pin Bar candlestick. However, it has greater accuracy (the probability of a reversal from up to down is higher than Pin Bar candlestick).
2 common variants of Bearish Engulfing
- (A) => The price increases slowly, showing signs of slowing down and then drops uncontrollably (B). The uptrend is weakened as the bears join in. The reversal from an uptrend to a downtrend takes place quickly.
- (A) => The price still increases despite a slight adjustment and then ends up with a bearish candlestick that clears all the previous bullish momentum (B)
How to trade Binary options with Bearish Engulfing candle
The pattern signals an imminent reversal from up to down. But in order to enter safe options, it is advisable to combine them with trend indicators to increase accuracy.
Combine with SMA30 indicator
Conditions: A 5-minute Japanese candle chart, SMA30 indicator. The expiration time of 15 minutes or above.
SMA30 is an indicator used to detect price trends. When the price is below the SMA30, the market is in a downtrend. On the contrary, if the price is completely above the SMA30, the market tends to be in an uptrend.
How to open an option:
Open a DOWN option: The Bearish Engulfing candlestick pattern appears below the SMA30.
Explanation: When the price is completely below the SMA30, the downtrend is stable. When the pattern hits the SMA30, the probability of price to continue to decline is very high.
Combine with the resistance level
Conditions: A 5-minute Japanese candlestick chart. The expiration time of 5 minutes.
Open a DOWN option: Bearish Engulfing candlestick pattern forms right at the resistance level.
Explanation: When the price enters the resistance zone, there is a probability of the price to decline. The pattern appears there as a reasonable entry signal for a bearish order.
Notes when trading with this candlestick pattern
– Bearish Engulfing candlestick pattern has high accuracy when appearing at the end of an uptrend.
– Do not use it when the market is moving sideways.
– Combine with technical analysis indicators to get a safe entry point.
– Candlestick patterns are less accurate when the market is volatile by the news.
Through the above article, How To Trade Blog has introduced two Engulfing candlestick patterns to you. These are signals that traders around the world use very often. Because every time it appears, it gives very high accuracy.
Try trading with Engulfing candlestick pattern on a Demo account to see its effectiveness and winning rate.