All candlestick patterns for Trading : Bearish reversal patternsHello everyone 😃
In this article we present Most useful bearish reversal patterns of candlesticks and How to trade with them. ( Sorry for my irregular chart 🤦♂️ I'm not good in drawing 😁 )
📊 What is Candlestick charts ?
Candlestick charts are a type of financial chart for tracking the movement of securities. They have their origins in the centuries-old Japanese rice trade and have made their way into modern day price charting. Some investors find them more visually appealing than the standard bar charts and the price actions easier to interpret.
Candlesticks are so named because the rectangular shape and lines on either end resemble a candle with wicks. Each candlestick usually represents one day’s worth of price data about a stock. Over time, the candlesticks group into recognizable patterns that investors can use to make buying and selling decisions.
📍 Bearish reversal candlestick patterns : Bearish reversal candlestick patterns can form with one or more candlesticks; most require bearish confirmation. The actual reversal indicates that selling pressure overwhelmed buying pressure for one or more days, but it remains unclear whether or not sustained selling or lack of buyers will continue to push prices lower. Without confirmation, many of these patterns would be considered neutral and merely indicate a potential resistance level at best. Bearish confirmation means further downside follow through, such as a gap down, long black candlestick or high volume decline. Because candlestick patterns are short-term and usually effective for 1-2 weeks, bearish confirmation should come within 1-3 days.
To be considered a bearish reversal , there should be an existing uptrend to reverse. It does not have to be a major uptrend, but should be up for the short term or at least over the last few days. A dark cloud cover after a sharp decline or near new lows is unlikely to be a valid bearish reversal pattern. Bearish reversal patterns within a downtrend would simply confirm existing selling pressure and could be considered continuation patterns.
There are many methods available to determine the trend. An uptrend can be established using moving averages, peak/trough analysis or trend lines. A security could be deemed in an uptrend based on one or more of the following :
- The security is trading above its 20-day exponential moving average (EMA).
- Each reaction peak and trough is higher than the previous.
- The security is trading above a trend line.
🈺 Now let's talk about patterns that we provided on chart.. !
- Hanging man : The hanging man is characterized by a small "body" on top of a long lower shadow. The shadow underneath should be at least twice the length of the body.
📚 The hanging man represents a potential reversal in an uptrend. While selling an asset solely based on a hanging man pattern is a risky proposition, many believe it's a key piece of evidence that market sentiment is beginning to turn. The strength in the uptrend is no longer there.
- Gravestone DOJI : A gravestone DOJI is a bearish reversal candlestick pattern that is formed when the open, low, and closing prices are all near each other with a long upper shadow.
📚 A gravestone DOJI is a bearish pattern that suggests a reversal followed by a downtrend in the price action.
📌 A gravestone pattern can be used as a sign to take profits on a bullish position or enter a bearish trade.
- Bearish kicker : This pattern is characterized by a sharp reversal in price over the span of two candlesticks.
📚 Traders use kicker patterns to determine which group of market participants is in control of the direction.
📌 The pattern points to a strong change in investors' attitudes towards a security that typically follows the release of valuable information about a company, industry, or economy.
- Shooting stars : A shooting star is a bearish candlestick with a long upper shadow, little or no lower shadow, and a small real body near the low of the day.
📚 A shooting star occurs after an advance and indicates the price could start falling.
The formation is bearish because the price tried to rise significantly during the day, but then the sellers took over and pushed the price back down toward the open.
- Bearish spinning top : A spinning top is a candlestick pattern that has a short real body that's vertically centered between long upper and lower shadows.
📚 The real body should be small, showing little difference between the open and close prices.
📌 Since buyers and sellers both pushed the price, but couldn't maintain it, the pattern shows indecision and that more sideways movement could follow.
- Bearish engulfing : A bearish engulfing pattern is a technical chart pattern that signals lower prices to come. The pattern consists of an up (white or green) candlestick followed by a large down (black or red) candlestick that eclipses or "engulfs" the smaller up candle.
📚 A bearish engulfing pattern can occur anywhere, but it is more significant if it occurs after a price advance. This could be an uptrend or a pullback to the upside with a larger downtrend.
🔴 The pattern can be important because it shows sellers have overtaken the buyers and are pushing the price more aggressively down (down candle) than the buyers were able to push it up (up candle).
- Bearish harami : A bearish harami is a two bar Japanese candlestick pattern that suggests prices may soon reverse to the downside. The pattern consists of a long white candle followed by a small black candle. The opening and closing prices of the second candle must be contained within the body of the first candle. An uptrend precedes the formation of a bearish harami.
📚 A bearish harami is a candlestick chart indicator for reversal in a bull price movement.
📌 Traders can use technical indicators, such as the relative strength index (RSI) and the stochastic oscillator with a bearish harami to increase the chance of a successful trade.
- Dark cloud cover : Both candles should be relatively large, showing strong participation by traders and investors. When the pattern occurs with small candles it is typically less significant.
📚 Dark Cloud Cover is a candlestick pattern that shows a shift in momentum to the downside following a price rise.
The pattern is composed of a bearish candle that opens above but then closes below the midpoint of the prior bullish candle.
📌 Traders typically see if the candle following the bearish candle also shows declining prices. A further price decline following the bearish candle is called confirmation.
- Evening star : An evening star is a stock-price chart pattern used by technical analysts to detect when a trend is about to reverse. It is a bearish candlestick pattern consisting of three candles: a large white candlestick, a small-bodied candle, and a red candle.
📚 Evening star patterns are associated with the top of a price uptrend, signifying that the uptrend is nearing its end.
- Evening DOJI star : The Evening DOJI Star is a bearish reversal pattern, being very similar to the Evening Star. The only difference is that the Evening Doji Star needs to have a doji candle (except the Four-Price Doji) on the second line. The DOJI candle (second line) should not be preceded by or followed by a price gap.
📚 The pattern, as every other candlestick pattern, should be confirmed on the next candles by breaking out of the support zone or a trendline. If the occurrence is confirmed, then its third line may act as a resistance area. It also happens, however, that the pattern is merely a short pause prior further price increases.
- Bearish abandoned baby : A bearish abandoned baby is a specialized candlestick pattern consisting of three candles, one with rising prices, a second with holding prices, and a third with falling prices. Technical analysts expect that this pattern signals at least a short-term reversal in a currently upward trending price.
📚 This is a rare pattern that has a fairly strong track record for forecasting a short-term downward trend.
The key item of the pattern is the middle day, which should have a gap in front of it and following it, and which should close the session with price unchanged.
- Three black crows : The black crow pattern consists of three consecutive long-bodied candlesticks that have opened within the real body of the previous candle and closed lower than the previous candle.
📚 Three black crows is a bearish candlestick pattern used to predict the reversal of a current uptrend.
Traders use it alongside other technical indicators such as the relative strength index (RSI).
- Tweezer top : A tweezers topping pattern occurs when the highs of two candlesticks occur at almost exactly the same level following an advance.
📚 Tweezers are more meaningful as part of other trends, especially pullbacks.
- Three inside down : The three inside down pattern is a bearish reversal pattern composed of a large up candle, a smaller down candle contained within the prior candle, and then another down candle that closes below the close of the second candle.
📚 The down version of the pattern is bearish. It shows the price move higher is ending and the price is starting to move lower. Here are the characteristics of the pattern.
- Three outside down : The three outside down describe a pair of three-candle reversal patterns that appear on candlestick charts. The pattern requires three candles to form in a specific sequence, showing that the current trend has lost momentum and might signal a reversal of an existing trend.
📚 The first candle marks the beginning of the end for the prevailing trend as the second candle engulfs the first candle. The third candle marks an acceleration of the reversal.
- Advance block : Advance block is the name given to a candlestick trading pattern. The pattern is a three-candle bearish setup that is considered to be a reversal pattern—a suggestion that price action is about to change from what had been an upward trend to a downward trend in relatively short time frames.
📚 An advance block is a three-period candlestick pattern considered to forecast a reversal.
The pattern's success at predicting reversal is barely above random.
- Bearish stick sandwich : One candlestick pattern is the stick sandwich because it resembles a sandwich when plotted on a price chart - they will have the middle candlestick oppositely colored vs. the candlesticks on either side of it, both of which will have a larger trading range than the middle candlestick.
📚 These patterns may indicate either bullish or bearish trends, and so should be used in conjunction with other methods or signals
- Matching high : The first line of the pattern appears as a long line whereas the second one can be either long or short. Both candle lines need to close at the same level. Additionally, the opening of the second candle need to be higher than the opening of the previous candle.
📚 The Matching High is built of two MARUBOZO candles having white bodies. In other words, it can be a White MARUBOZO or a Closing White MARUBOZO.
- Bearish breakaway : The bearish breakaway is a formation of five candlesticks where the first is always bullish and the last is always bearish. The middle candlesticks will be rising and can be either bearish or bullish, but will usually be bullish.
📚 A bearish breakaway is a chart formation that can appear in a rising market when the price starts to pull or break away gradually to the downside.
- Bearish Tri-Star : Tri-Star patterns form when three consecutive DOJI candlesticks appear at the end of a prolonged trend.
📚 A Tri-Star pattern near a significant support or resistance level increases the probability of a successful trade.
- MARUBOZO : The black MARUBOZO is simply a long black (down, or red on the charts below) candle, with little to no upper or lower shadows. The pattern shows that sellers controlled the trading day from open to close, and is therefore a bearish pattern.
📚 How to avoid false MARUBOZO signals and setting stop-loss :
If bearish, take a short when price falls below;
Place a stop above candlestick.
🔴 NOTES :
- There are many bearish reversal patterns that we only present most useful patterns for trading !
- Most of them have 2 definition and direction ( Bearish and Bullish ) and we only present bearish reversal patterns !
- For better result in your trading, You need to confirm patterns through trend lines , momentum, oscillators, or volume indicators.
⏰ Best timeframes to work with candlestick patterns :
Traders usually use Monthly, Weekly, Daily, 4-Hour, Hourly, 15-Minute and even 1-Minute timeframes.
Ideally, traders pick the main timeframe they are interested in and then choose a longer and a shorter timeframe to complement the main one .
The longer timeframes typically contain fewer and more reliable signals. The shorter timeframes usually contain more signals with less accuracy.
There are several types of traders, and they have different trading styles.
📍 We will provide more contents for candlestick patterns in next weeks !
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Have a great moments.
@Helical_Trades
