21st May 2022

Top 5 Bearish Candlestick Patterns

What Are Bearish Candlestick Patterns?

Bearish candlestick patterns are those patterns that indicate that the price is looking bearish and sellers entered the market. It results in further lower prices of an underlying which helps in taking the better  trade decision

There are many bearish candlestick patterns available to check, but out of those we have filtered out our top 5 bearish candlestick patterns which are more effective to use in the stock market.

Top 5 bearish candlestick patterns

Let us look at the Top 5 bearish candlestick patterns:

Bearish Engulfing Pattern

This pattern forms when a red candle (bearish candle)completely engulfs the previous up candle(Bullish candle). It means the high of the current bar is at or greater than the previous candle high and the low of the current bar is at or lower than the previous candle low

This pattern usually happens during an uptrend and is supposed to signal the commencement of a bearish trend in a particular share. 

The bearish engulfing pattern develops at the top of the trend. It may also form at any trend but this pattern becomes more significant when it forms in an uptrend 

How to identify a bearish engulfing pattern?

Here are the details on how to identify a bearish engulfing candle.

  • When the prices are increasing even if in the short-term trade cycle
  • Bullish (Green) candlestick must be completely overshadowed by the bearish (Red) candlestick
  • The bullish candlestick is showing a sign of momentum loss. The dominance of selling pressure is eminently reflected by the large bearish candlestick
  • Bearish reversal can be confirmed with the selling volume on the engulfing day.

Bearish Harami Candlestick Pattern

The Bearish Harami pattern is a reversal pattern emerging at the top of an uptrend. It consists of a bullish candle with a large body, followed by a bearish candle with a small body contained within the body of the previous candle.

The small bearish candle ‘gaps’ down to open near the mid-range of the previous candle and closes above the previous candle low. We can also call it an inside candle

The psychology behind this pattern is when the market is in an uptrend buyers felt the price is looking cheap and they continued to enter at every price but suddenly next bar was a gap down and a small-sized candle formed within the previous bullish candle this indicates sellers entered the market by feeling that price is overvalued and buyers started profit booking. 

How to Identify a Bearish Harami Pattern

  • To identify the bearish harami, you need to recognize an existing uptrend.
  • You need to look for signals that indicate slowing of an uptrend
  • You have to ensure that the body of the small red candle measures not larger than 25% of the previous bullish candle. 
  • Observe if the whole bearish candle is embedded within the length of the previous bullish candle’s body.
  • Look for convergence with the use of supporting indicators, key levels of resistance.

Evening Star Candlestick Pattern

The Evening Star candlestick is a three-candle pattern that signals a reversal in the market and is commonly used to trade in the stock market. 

The Evening Star pattern is a bearish reversal candlestick pattern that appears at the top of an uptrend. It signals the slowing down of upward momentum before a bearish move lays the foundation for a new downtrend. 

How to Identify an Evening Star Pattern

Recognizing the Evening Star on charts involves more than simply identifying the three main candles. You need to understand the previous price action and where the pattern emerges within the existing trend.

  • The market should be exhibiting higher highs and higher lows.
  • The large bullish candle is the result of large buying pressure and a continuation of the existing uptrend. At this point, traders should only be looking for long trades as there is no evidence of a reversal yet.
  • The second candle is a small candle – sometimes a Doji candle – that presents the first sign of a fatigued uptrend. Often this candle gaps higher as it makes a higher high. It does not matter if the candle is bearish or bullish as the main takeaway here is that the market is somewhat undecided.
  • The first real sign of new selling pressure is revealed in the third candle. This candle gaps down from the close of the previous candle and signals the start of a new downtrend and uptrend going to an end.
  • After a successful reversal, traders will observe lower highs and lower lows but should always manage the risk of a failed move through the use of a well-placed stop. So to take a short position sell below the low of the third bar by keeping high of the pattern(second candle in evening star) as a stop loss.

3 Line Strike Candlestick pattern

A Three line strike is a group of three candles in the direction of trend followed by a pullback to a starting point(engulfs the 3 candles).

The Three Line Strike Candlestick Pattern consists of four candlesticks and can be found during both upward and downward trends. 

It can be identified after the formation of three candles during a trend and the fourth candle of opposite nature which pulls back to the starting point of the first candle.

Bearish 3 line strike: A bearish three-line strike is made up of four candles. Out Of these, the first three candles are bearish, while the last candle is bullish.

It is made up of three strong bearish candles that close lower followed by a final bullish candle that begins at or lower than the third candle but closes at least higher than the open of the first candle. 

The pattern is an indication of a trend reversal. A bearish pattern leads to the formation of three bearish candles during a bear trend and vice versa

How to Identify a Three Line Strike Candlestick pattern?

The first three candles should be a part of the trend and should be similar.

In the first three candles, if the trend is bearish, the closing price should be lower than the previous closing price.

The low should be lower than the previous day’s low and the high should be lower than the previous day’s high for a bearish trend.

The last candle is very important for the formation of a three-line strike pattern. The candle will have the highest high and lowest low among all four candles

3 Black Crows Candlestick pattern

The Three Black Crows candlestick pattern shows a bearish candlestick pattern that supposes the reversal of an uptrend.

It features three consecutive long bodies that have opened among the real body of the last candle and have closed lower than the previous candle.

These candlesticks are seen at the end of the bullish trend, which depicts that there is a shift of control over the bears from the bulls.

How To Identify Three Black Crow Candlestick Patterns?

Three black crows usually form during an end of an uptrend, containing three bearish candles, generating a downward movement. 

Each of these candles opens within the body of the previous one i.e should be between the midpoint and closing price of the previous candle and closes lower than the previous one. 

The candles have long real-bodies with short or no shadows – hinting that bear forces have successfully pulled the market down and closed near the low. 

How to select stocks using Bearish candlestick scans on Intraday screener?

To select stocks using bearish candlestick scans on an intraday screener, you need to follow the below steps

  • You have to see the trend of a stock, and the trend should be in bullish
  • You have to check the support and resistance of the stocks
  • If the stock forms a bearish candle at the resistance, we can depict it as the trend reversal.
Bearish Candlestick Patterns
Share

Leave a Reply

Your email address will not be published.

%d bloggers like this: