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A powerful two-candle reversal pattern where a large bearish candle completely engulfs the prior bullish candle, signaling a decisive shift in control from buyers to sellers.
The Bearish Engulfing is a two-candle reversal pattern that forms at the top of an uptrend. It consists of a small bullish candle followed by a larger bearish candle whose body completely "engulfs" or covers the body of the first candle.
The key requirement is that the second candle's body must open below the first candle's close and close above the first candle's open - completely encompassing the prior candle's real body. This represents a decisive shift where sellers overwhelm the buyers.
The Bearish Engulfing tells a story of complete reversal of power. On the first day, buyers maintain control - the market closes higher, continuing the uptrend. Bulls feel confident; the trend appears intact.
Then everything changes. The second day opens even higher (showing initial bullish continuation), but sellers flood in. They push price down through the entire previous day's range and beyond, closing below where buyers started the day before.
This is not subtle. The large bearish candle *physically swallows* the bullish candle - a visual representation of sellers consuming and overwhelming buyer conviction. It's the market's way of saying "the bulls are done here."
Conservative: Enter on a break above the engulfing candle's high, confirmed by the next bullish candle.
Aggressive: Enter short at the close of the engulfing candle if volume and context are strong.
Place stop below the low of the engulfing pattern (the lower shadow of either candle). This is where the pattern is invalidated.
T1: Previous swing high or nearest resistance level. T2: Measured move equal to the engulfing candle's range projected upward. T3: Use trailing stop on 50% position for extended moves.
Minimum 1:2 R:R required. The pattern's reliability increases when R:R is favorable and volume resistances.
A Bearish Engulfing is most powerful when it appears in the right context. The same pattern can be highly reliable or just noise depending on where it forms.
The best bearish engulfing patterns happen after extended rallies with multiple green candles - they signal exhaustion, not just a pullback.
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