How To Trade The Bearish Engulfing Pattern

Thanks a lot for the explanation of this technique-trading the Bearish Engulfing. I am just beginning my forex journey and im glad to have stumbled on your many works. I’m actually enjoying reading from you and this strategy is going to give me more strength. Well, it tells you the sellers are in control and the market is likely to reverse lower. It’s so strong that the range of the Bearish Engulfing pattern exceeds the preceding candles.

• In summary, the engulfing pattern trading strategy gives you a chance to trade along with the smart money and profit from trapped retail traders.
• They can also appear in the middle of a downtrend during a pullback of a trend where other traders are selling off their positions, but there is still buyer weakness.
• If you want to trade this pattern, there are a few things you should keep in mind.

Traders often overlook the fact that price movements are the only indication of who has more power in the market. Indicators like the Bollinger Bands or the ADX won’t necessarily tell you this. However, looking at candlesticks is the first sign of aggressiveness and pressure from the buyers or the sellers. But the key is to use these other price action patterns to find trading opportunities on a daily basis which you can find more of on our website. For me personally, I’ve had the best success with engulfing patterns at swing highs and swing lows.

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For example, the following would also be considered a valid engulfing pattern. Notice in the illustration above, the engulfing candle’s range (high to low) completely engulfs the previous candle. Just as the name implies, an engulfing candle is one that completely engulfs the previous candle. In other words, the previous candle is completely contained within the engulfing candle’s range. If entering a new short position, a stop loss can be placed above the high of the two-bar pattern.

A powerful candlestick pattern (the one we’ll explore) is called the Engulfing Pattern. Or you could wait for the price to pull back slightly before the close of the candlestick formation. You can also commonly find them reacting to resistance levels at an end of a trend. Unlock our free video lessons and you will learn the exact chart patterns you need to know to find opportunities in the markets. Learn the exact chart patterns you need to know to find opportunities in the markets.

Bearish Engulfing Potential Trade Entry & Sell Signals

Second, before entering a trade, you should wait for the candlestick pattern to form and confirm. The sequence is usually a buy candle followed by a strong sell candlestick, indicating a bearish engulfing pattern and thus sellers are bringing in the pressure to go lower. The sequence is usually a sell candle followed by a strong buy candlestick, indicating a bullish engulfing pattern and thus buyers are bringing in the pressure to go higher. Your success as a Forex trader depends on your ability to identify reversals in the market. The better you become at doing this, the closer you are to experiencing consistent profits. One pattern that can greatly assist you in doing just that is the bearish engulfing pattern.

If so, understanding which currency pairs move the most pips can be a great way to do just that! You can also spot reversals through the use of trading indicators. 1- It needs to be formed during a period when the price of an asset bullish engulfing pattern is in a downward trend. What’s more, if you want to spot reversals, using indicators can help confirm the pattern. Compared to standard brokers, your ECN brokerage can offer much tighter spreads as there is no ‘middleman’.

How to trade a bearish engulfing candlestick pattern?

If you see a market situation similar to the picture below, think about going short after you have additional confirmations. Most traders see a bullish engulfing pattern and they just go long blindly. A bearish engulfing pattern is a trend reversal pattern to the downside. Engulfing pattern is a reversal candlestick pattern that can give either bullish or bearish signals. As a result, a single candlestick could contain a lot of data which some traders could use to help in evaluating what might happen in the future.

However, if the price is choppy, the significance of the pattern is diminished as there is usually no big room to the downside to placing a short position. The result is price is pushed lower and eventually ends up closing much lower from the previous low of the bullish candle. The fact that the second bearish engulfing candle engulfs the bullish candle affirms that sellers have overpowered buyers and are likely to continue pushing the price lower.