There are many types of bullish and bearish events to learn. In the previous discussion, we have studied one type of bullish, namely bullish engulfing. So this time, we will study the opposite, namely bearish engulfing. This type of pattern will help you in dealing with bearish conditions that occur on the chart when trading.

Bearish engulfing is a pattern consisting of 2 candles, the first is a bullish candle and the second is a candle with a bearish condition that is longer than the previous candle. This pattern is usually a signal to open a sell position. For more information about this bearish engulfing, you can see it through the article below. In addition, consult your trading through the GIC Trader Assessment and ask anything that still confuses you about trading itself!

What is Bearish Engulfing?

Bearish engulfing merupakan kebalikan dari bullish engulfing. Pola ini akan mengindikasikan adanya suatu potensi bearish di mana pada saat munculnya pola ini akan ditandai dengan adanya bearish candlestick yang lebih panjang jika dibandingkan dengan bullish candlestick yang sebelumnya. Pola ini akan memicu pembalikan tren yang sedang terjadi karena akan lebih banyak penjual yang memasuki pasar dan membuat harga akan jatuh.

The pattern of this bearish engulfing will involve two candles with the second bearish candle completely engulfing the 'body' of the previous green candle. It should be noted that the size of this first candle can vary, and the size of the candle does not really affect the pattern itself. However, single candles in the form of doji and similar small candles will be considered better in this position, because they can reflect the ongoing uncertainty in the market.
 
The second candle in this bearish engulfing pattern is a reversal signal, formed by a long red candle with a new downward price momentum. Ideally, the high level on this second candle should be higher than the first candle, and will be followed by the price reaching a new low level.

The price movement that will be depicted by the second candle is when the seller is taking over the trend from the buyer, where often after that the price will fall. The lower the price decline in the second candle, the stronger the reversal signal from uptrend to downtrend can be considered. And it is important to note that the body of the second candle must completely cover the body of the first candle. If the shadow of the first candle is also 'engulfed' by the shadow of the second candle, then the signal can be considered to be of higher quality. Here are the characteristics of Bearish Engulfing itself:

  • Length of bearish candlestick > length of previous bullish candlestick.
  • The low price of the bearish candlestick < the low price of the previous bullish candlestick.
  • Close price of bearish candlestick < low price of previous bullish candlestick (not a requirement).

Bearish Engulfing Conditions

The opposite of bullish engulfing, this bearish engulfing pattern will develop when the uptrend is exhausted and will signal a potential reversal of the stock price that is heading towards a downtrend. If the bullish candle in the bullish engulfing seems to "swallow" the bearish candle, then this bearish engulfing is marked by a bearish candle that is larger than the bullish candle next to it.

The body size of this bullish candle can vary, but the most important requirement for it to be called a bearish engulfing is that its size does not exceed the bearish candle. So its body must be completely "engulfed" by the bearish candle. In other words, this bearish candle opens above the previous close and closes well below the previous candle.

This strong downward movement in the stock price will indicate a seller who has taken over which was initially dominated by buyers in the bullish candle and often precedes a continued price decline. The further the bearish candle goes down, the stronger the signal will be.

Bearish Engulfing Example

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The example above is a chart showing three bearish engulfing patterns that have occurred in the forex market. The first bearish engulfing pattern occurred during an upward pullback in a larger downtrend. Price moved lower following the pattern.

The next two engulfing patterns are less significant considering the overall picture. The forex pair's price range begins to narrow, indicating choppy trading, and there was very little upside movement before the pattern formed. A reversal pattern is of little use if there is only a slight reversal. In ranges and choppy markets engulfing patterns will occur frequently but are usually not good trading signals.

Bearish Engulfing Pattern

Bearish Engulfing Pattern is a candlestick pattern that forms at the peak of an uptrend. This bearish engulfing pattern consists of two candles. The first candle will signal the end of the uptrend's strength. It should also be noted that the size of this first candle can vary, and the size of the candle does not really affect the bearish engulfing pattern itself.
 
However, as explained above, single candles in the form of doji and similar small candles will be considered better in this position, because they can reflect the uncertainty that is taking place in the market. The second candle in this bearish engulfing pattern is a reversal signal, which is formed by a long red-bodied candle that shows new downward price momentum. Ideally, the high level on the second candle (bearish) should be higher than the first candle, while also being followed by the price reaching a new low level (lower low).

The price movement depicted by the second candle is when sellers take over the trend from buyers, which often follows a price drop. The lower the price drop on the second candle, the stronger the reversal signal from the uptrend to the downtrend can be considered. And it is important to note that the body of the second candle must completely cover the body of the first candle. If the shadow of the first candle is also 'swallowed' by the shadow of the second candle, then the signal can be considered to be of higher quality.

Bearish Engulfing Candle

The engulfing candle pattern itself is a pattern consisting of 2 candlestick bars. This pattern will be marked by the last candlestick bar that 'engulfs' the bar on the previous candlestick. In other words, the last candle will have a longer body than the previous candle. The engulfing pattern will be more valid if it has a short tail or no tail, because a long tail can reflect uncertainty in the direction of price movements or a tendency for consolidation events.
 
In a trending market, the emergence of this pattern can provide a signal for a trend reversal. Many traders assume that the stronger a trend, the higher the probability. In addition, the level of accuracy will also be greater at higher time frames. The higher the time frame, the higher the probability of its truth.

This bearish engulfing pattern is a signal to open a sell position. Similar to bullish engulfing, to obtain a high potential for accuracy, you should make sure that the market conditions are truly trending. In addition, you should also enter when the engulfing bar pattern has finished forming. Before continuing to the discussion of the bearish engulfing cross, there is a test that you can do to measure how far your trading ability is, namely by taking the Preliminary Test from GIC.


Bearish Engulfing Cross

Bearish Engulfing Cross is similar to the bearish harami cross. Like the Bearish Engulfing candlestick pattern, the bearish harami cross candlestick pattern is a sign that a reversal is occurring from an uptrend (Bullish) to a downtrend (Bearish). So, after this candlestick pattern is formed, we should start selling the shares we own. This is because the stock price will continue to fall in the future. However, the Bearish Harami Cross candlestick pattern has a medium level of accuracy.

This means that the chance for a price decrease is still not great enough. Instead of experiencing a decline, it is possible that in the end, the trend will continue to rise. Therefore, it is advisable for traders to wait for confirmation before deciding to start selling. The Bearish Harami Cross candlestick pattern is formed by two candlesticks. A long-bodied white candlestick and a doji candlestick with tails at the top and bottom of the same length. To make it easier for you to analyze, let's assume that this candlestick pattern has formed in a daily time frame. On the first day there is a long-bodied white candlestick.

This will tell us that on the first day, the bullish continued to dominate. There was still no significant resistance to the Bearish condition. It can be concluded that the next day, most likely the bullish condition will still dominate the market. Unfortunately, this is not proven. On the second day, a doji candlestick will form with the upper and lower tails of the same length. The opening and closing prices will be below the closing price on the first day. This will tell us that at the beginning of the market opening, the bearish condition will immediately initiate a surprise attack that can push back the bullish condition. At that time, there was resistance from the bullish, but it was not strong enough to push back the bearish condition again.

In the end, the bearish managed to seize half of the area that was on the first day that had been controlled by the bullish condition. This means that there is a chance that the bearish will dominate the market in the following days. However, it can also be seen that the resistance from the bullish condition is still quite strong. Then the bullish condition will strengthen and dominate the market again. This is why it is advisable to wait for confirmation before taking action. Waiting for confirmation that the bearish condition has really been able to overcome the bullish condition.

Also read : 

Bullish Engulfing: Definition and Weaknesses in Stocks



Bearish Engulfing Saham

Bearish is now known as one of the stock terms that will describe the condition of the stock market or other financial assets that are declining or weakening. This condition can be marked by a higher level of supply than demand, low confidence, and many prices that have fallen.

When the market is in a bearish condition, then generally stock assets will be difficult to trade. Because this bearish market is a condition of the stock market that is weakening, this condition is commonly known as a bear market which will show a stock price index that continues to decline over a certain period of time. For Bearish engulfing itself is a pattern consisting of 2 stock charts (candlesticks). The first chart is a bullish chart and the second chart is a bearish chart with a longer shape than before.

After studying bearish engulfing stocks, also download the GICTrade application so that you can trade in real-time on the application by downloading it via the Play Store or App Store.

Bearish Engulfing Confirmation

This bearish engulfing pattern will appear at the end of several upward price movements. This will be indicated by the first candle of the upward momentum being taken over, or swallowed by the second candle which is larger and shows a shift towards lower prices later. The pattern has greater reliability when the opening price of the engulfing candle is well above the closing price of the first candle, and when the closing price of the engulfing candle is well below the opening price of the first candle. A much larger down candle will show more strength than if the down candle is only slightly larger than the up candle.

The pattern is also more reliable when following a clean move higher. If price action is going to be choppy or ranging, then many engulfing patterns will occur but may not produce major price movements because the overall price trend has been choppy or ranging.

Before acting on the pattern, traders will typically wait for the second candle to close, and then take action on the next candle. This includes selling a long position after the bearish engulfing pattern occurs, or potentially entering a short position. If entering a new short position, the stop loss can be placed above the high of the two-bar pattern.

Savvy traders will consider the big picture when using the bearish engulfing pattern. For example, taking a short trade may not be wise if the uptrend is very strong. Even the formation of the bearish engulfing pattern may not be enough to stop the advance in the long term. However, if the overall trend is down, and price has just seen a pullback to the upside, then the bearish engulfing pattern can provide a good shorting opportunity because the trade is in line with the long-term downtrend.


Related Topic

Here are some topics related to bearish engulfing itself. Many traders are confused in distinguishing some of the things below. Therefore, we have summarized some things that are often questioned by traders themselves. The topics are:

Bearish Harami

The Bearish Harami pattern is a reversal pattern that appears at the top of an uptrend. The pattern consists of a large-bodied bullish candle followed by a small-bodied bearish candle that is enclosed within the body of the previous candle. As a sign of changing momentum, this bearish candle will have a small gap down opening near the middle of the previous candle's range.

Bullish Engulfing

This engulfing candlestick appears at the bottom of a downtrend and will indicate a spike in buying pressure. This bullish engulfing pattern often triggers a trend reversal as more buyers enter the market to push prices further up. The pattern involves two candles with the second candle completely engulfing the body of the previous red candle. After learning a few things about bearish engulfing, also study the case examples on various other websites so that you can become more familiar with the characteristics of bearish engulfing itself.

You can also fill out GIC's internal survey if there are still things that are unclear regarding the explanation of the advanced class discussion or about our platform. Don't forget to also apply the use of this bullish engulfing to your trading chart so that later you don't take the wrong steps in trading. In addition, invite your friends to join GIC or make yourself an IB and get various benefits ranging from additional income to various types of materials available!