Bearish Engulfing Candle

Today we're going to be discussing how easily I can predict a trend reversal and tell you lower prices are forthcoming using the bearish engulfing candle.

Ever wondered how the so-called crypto lords are always almost correct in predicting a reversal trend in the market, especially when lower prices are on their way? Well, a quick look at this article would help you predict a reversal in the downward trend (ie when lower prices are on their way) and on your journey to be a millionaire. That is if you've been paying attention to my previous article.

What is a Bearish engulfing Candle?

A bearish engulfing candle is a candle pattern that indicates lower prices are on the way. It is a two-candle reversal pattern that consists of an up (white or green) candlestick followed by a large down (black or red) candlestick in which the second candle completely ‘engulfs’ the real body of the first one, without regard to the length of the tail wick.

The pattern can be important because it shows that sellers have overtaken the volume

bars and are pushing the price more aggressively towards the downtrend.

What does the Bearish Engulfing Candle tell you?

A bearish engulfing pattern is seen at the end of an upward price move ( that is at the end of an uptrend) and is marked by the first candle of an upward momentum being overtaken or engulfed by a large second candle, indicating a shift toward lower prices ( downtrend).

The pattern has greater reliability when the open price of the engulfing candle is much below the first candle's open, and when the close of the engulfing candle is well below the open of the first candle.

A much larger bearish candle shows more strength than if the bearish candle is only slightly larger than the bullish (green) candle.

When it follows a clear move higher, the pattern is also more consistent. If the price action is ranging many engulfing patterns will occur but they are unlikely to result in major price moves. Since the overall price trend is ranging.

Before acting on the pattern traders typically wait for the second candle to close and then take the action on the following candle.

The action includes selling a long position once a bearish engulfing pattern occurs or potentially entering a short position.

Taking a short trade may not be wise if the market is in an uptrend and it is very strong. A bearish engulfing pattern may provide a good shorting opportunity most times when the trade aligns with the longer-term downtrend.

What is the difference between a bearish engulfing Candle and a bullish engulfing Candle?

These two patterns are opposite, a bullish engulfing pattern occurs after a price moves lower towards the downtrend and indicates higher prices to come, whereas the bearish engulfing pattern occurs after the price move higher towards the uptrend.

What are the limitations of using a bearish engulfing Candle?

Bearish Engulfing patterns are most useful following a clean upward price move, as the pattern has shown the shift in momentum to the downside. Because it is a fairly common indicator, the impact of the engulfing pattern is diminished if the price action is choppy, even if the price is rising overall.

How to identify the perfect Bearish Engulfing Candle

Some conditions must be met for a perfect bearish engulfing pattern to be formed.

Let's look at the conditions that form a 100% Perfect bearish engulfing pattern.

Both candles should be average.
Red candles should be between 120% to 140% compared to green.
There should be upper and lower wicks on both sides.

For example, for a 100% Perfect bearish engulfing pattern to be formed the pattern must meet all three conditions, the success rate is 85% if the wicks of the green and red candles are small, when some candles have one or no wicks on one or both side the success rate is said to be 75%, it is 65% if there are no wicks on either side.

In this picture above, it is 100% Perfect, because, in the completion of green, the red candle is between 120% and 140%. The red candle is slightly larger, between 150% and 175%, so the success rate of this pattern is about 80%. The success rate of this pattern is about 70% % when it is between 175 to 200% compared to green. The red candle here is very large, it is between 203 and 300% compared to green. Therefore the success rate of this pattern is less than 60% when the red candle is very large and it is between 203%- 300% and it is 50:50 if the red candle is larger than 300%.

Bearish Engulfing