How to Trade Powerful Bearish Candlestick Patterns

How to Trade Powerful Bearish Candlestick Patterns

Bearish Candlestick Patterns

• The technical analysis tool for displaying price information over different periods is candlestick patterns. Candlestick patterns originated in Japan in the 18th century and are now widely used in the trading industry.
• Candlestick Charting Techniques, written by Steve Nison in 1991, was the first Western book to explain the Japanese charting technique of using candlesticks to analyze price trends.
• Traders may choose between bullish or bearish candlestick patterns.
• Learn about the top three bearish candlestick patterns and how to trade them in this helpful article.

Bearish Engulfing Pattern

• At the peak of an upswing, the bearish engulfing pattern will manifest. This pattern’s distinctive structure stands out immediately. The pattern begins with a little bullish candle engulfed by a more significant bearish candle.
• Remember that the pattern’s credibility increases when the second candle’s starting and closing prices are higher than the first. A larger second candle indicates a more robust bearish pattern than a larger first candle.

How to trade the bearish engulfing pattern

• It would help if you waited for the second candle to close before drawing conclusions or entering any trades.
• If you see an engulfing pattern, you should sell your long positions or initiate short ones. If you are starting short positions, establish a stop-loss close to the recent resistance region and profit targets near the recent support area.
• Thinking at the bigger picture before establishing short positions is a more prudent method to play the pattern. For instance, going short would only sometimes be the best strategy if the rise is extreme. Despite the engulfing pattern, the bulls may still drive the market upward.
• If the primary trend is downward and there has been a recent price retreat to the upside, then you should look to trade the engulfing pattern. This is important for your short holdings since it depicts a long-term downturn.

How do I avoid fake entries in the bearish engulfing pattern?

• If you wish to enter short positions, there has to be significant downward momentum, as was discussed before. In addition, engulfing patterns may appear in a range or choppy market, although they could be more successful because of the general trend. Because of this, it is prudent to stay away from such fictitious submissions.
• Price reversal signals may be seen in engulfing patterns. Because this pattern may appear in range and bumpy markets, trading it requires caution. Before making any short bets, you should determine the broader trend.

Bearish Hanging Man pattern

• The parallel behind the phrase “hanging guy” is rather compelling. The hanging man pattern represents a little upper body superimposed over a huge bottom shadow.
• The hue of the candle is less critical than the hanging guy, even though many people need clarification about him because of it. The pattern’s main body is of utmost importance. The body of the guy who is now hanging is relatively tiny, and his shadow is shallow. The candle’s shadow ought to be twice its size.
• The hammer design and the guy in the noose design are similar. The only real distinction is the prevailing direction of the patterns.
• A “hanging man” pattern indicates a reversal in an uptrend if it occurs there. The formation is a hammer if it appears during a decline and subsequently leads to a positive reversal.

How to trade the Hanging Man pattern

• Rules for trading the hanging man pattern include looking for larger volume and anticipating a downward trend after the extended lower shadow. You should only enter trades if the pattern conforms to these criteria.
• Once a pattern is recognized, either a short position may be opened on the next candle of the hanging man pattern, or long positions can be closed.
• short trades may be taken on the hanging man candle rather than the next candle if you are an aggressive trader. In the case of a hanging man pattern, you may protect your position by placing a stop loss order close to the most recent high and increase your profit target by trading off the most recent low.

How do I avoid fake entries in the Hanging Man pattern?

Instead of simply following the pattern, searching for specific features might help you avoid making erroneous entries. For example, the hanging man is not as reliable as the engulfing pattern, which is a more reliable indicator of a trend reversal.

Therefore, you should only join the trade if a large volume, longer lower shadows, and downward velocity accompany the hanging guy.

The chart commonly displays the hanging man pattern. However, they are only indicative of a possible shift in the trend. If you see a hanging man pattern, you should look for higher volumes, longer shadows, downward velocity, and a stop-loss order above the pattern. When these criteria are met, you should close your long positions.

A bearish evening star pattern

Traders utilize an evening star forex pattern to anticipate a reversal in a bullish trend. Three candles total the pattern’s width, the first being a huge bullish candle, the second being a neutral intermediate candle, and the third being a large bearish candle.

As a reliable indicator of a market reversal, the evening star pattern often appears on charts. To properly light all three candles in the design, you must:

• Since the first candle is bullish, we may expect the pattern to keep going upward.
• The second candle is unremarkable in any way. It may be bullish or bearish and point to a little price dip.
• The third candle represents a black bear. It begins above the second candle and closes in the middle of the first.
• The morning star pattern, the inverse of the evening star, shows up during a downward trend and predicts a rise in the price.

One crucial point is that the spread of the three candles is smaller in the FX market than in the stock or commodities markets.

How to trade the Evening Star pattern?

Once the pattern is recognized, an entry may be made at the next candle. Wait until the pattern is complete to take your position if the price falls if you are a cautious trader. There is a downside to this strategy in that you enter the trades at a much lower level, limiting your profit potential.

Choose your take-profit levels around the most recent support zone. The evening star pattern suggests setting stop-loss orders above the most recent high.

How do I avoid fake entries in the Evening Star pattern?

Even though the evening star pattern is reliable and bearish, trading it may be challenging in turbulent or range markets. Therefore, following the appearance of the evening star pattern, you should use price oscillators such as moving averages or trendlines.

The evening star pattern strongly indicates a negative trend. This pattern may be used with price oscillators and trendlines for enhanced performance. As soon as the pattern is seen, long positions should be closed.

Bearish Candlestick Patterns Bottom Line

The aforementioned bearish patterns may be used to predict future market movements accurately. However, before you can successfully execute short positions, you must first consider each trading pattern’s unique characteristics. Combining technical indicators like the RSI, Stochastics, and MACD may improve prediction accuracy.