Candlestick patterns are important tools in technical analysis. It helps traders understand market trends and make decisions. There are many different types of candlestick patterns, each of which can signal an increase or decrease in the market. This Forex Trading article will overview the Bearish candlestick pattern and introduce the top patterns that every trader should know to perform effective trading.
Overview of candlestick patterns
Candlestick patterns are one of the signals favored by traders in technical analysis. By using these candlesticks, traders can create accurate market predictions.
What is a candlestick pattern?
Candles are an expression of price fluctuations of a particular asset. It is considered within a certain time frame. It provides information about the opening, high, low, and closing prices during that time.
Candlestick patterns consist of one or more candles. It helps traders to reason about potential future movements and price patterns of the underlying asset. These patterns are displayed on charts and used for market analysis. Therefore, learning how to read candlestick charts is an important step to begin understanding and interpreting candlestick patterns when trading.
How to identify Bearish candlestick patterns in Forex
To apply the most popular candlestick patterns to a trading strategy, a trader needs to understand how the tilt of each pattern can affect the direction of the market (trend). Below are the two main types of price movement that candlesticks can indicate, summarized in the tables. Many of these models are listed in the top 10 list below.
Bullish candlestick patterns:
| CANDLE PATTERNS | DIRECTION |
| Morning Star | Increase (Reverse) |
| Bullish Engulfing | Increase (Reverse) |
| Doji | Increase/Decrease (Indecision) |
| Hammer | Increase (Reverse) |
| Harami Bullish | Increase (Reverse) |
| Piercing Pattern | Increase (Reverse) |
| Inside Bars | Increase (Continued) |
| Long Wicks | Increase/Decrease (Reverse) |
Bearish candlestick patterns:
| CANDLE PATTERNS | DIRECTION |
| Evening Star | Decrease (Reverse) |
| Bearish Engulfing | Decrease (Reverse) |
| Doji | Decrease/Increase (Indecision) |
| Bearish Haram | Decrease (Reverse) |
| Dark Cloud Cover | Decrease (Reverse) |
| Inside Bars | Decrease/Increase (Continued) |
| Long Wicks | Decrease/Increase (Reverse) |
| Shooting Star | Decrease (Reverse) |
How to read candlestick patterns
On the chart, each candle represents price fluctuations over a certain period of time. A candlestick pattern includes the candle body and candle shadow, each part has the following meaning:
- The candle body represents the price range between the opening price and closing price during a specified period of time. This period can be set by the investor. For example: 5 seconds, 15 seconds, 5 minutes, 15 minutes, 1 hour, 1 day, 1 week, or 1 month…
- The candle shadow (or candle wick) represents the highest price and lowest price during that period. The upper shadow represents the highest price, while the lower shadow represents the lowest price.
See more: Analyze & forecast trend effective candlestick pattern
Summary of Bearish candlestick patterns and how to trade them
Bearish reversal candlestick patterns often appear after an upward momentum. At the same time, it signals a reversal to a downtrend. Thanks to these signals, experienced investors can often recognize this change early. From there, we decided to exit the product to minimize profit loss.
When seeing strong bearish reversal candlestick patterns on the chart, traders will often notice this point. Thereby, you can consider selling trading products to preserve profits.
Gravestone Doji candle (Tombstone candle type)
Gravestone Doji, also known as the gravestone doji candle. This is one of the most popular Japanese candlestick reversal patterns. It is popular and widely used by traders. The appearance of Doji candlestick pattern often signals a reversal. That expression is from an uptrend to an upcoming downtrend.
The meaning of Gravestone Doji is that when it appears on the chart, it shows that buying demand is still high. This helps prices continue to increase. However, when the peak of the uptrend is reached, selling demand begins to dominate. Leading to a strong reversal and price decline. The longer the length of the Gravestone Doji candlestick shadow, the stronger the selling pressure. And correspondingly, the possibility of a reversal is also higher.
Bearish Engulfing
The Bearish Engulfing pattern identification point is one of the strong reversal signs. This pattern often appears at the end of an uptrend. It is usually represented by a pair of candles.
- The first candle in the pair is a bullish candle.
- The second candle in the pair is a bearish candle. The body of this candle must cover the entire previous candle.
The meaning of the Bearish Engulfing pattern is that the first candle is a green candle. This shows that the market is indecisive. On the contrary, if the first candle is a red candle, this is a sign that selling pressure has prevailed over buying pressure. In particular, the longer the second candle is, the stronger the reversal signal will be.
Shooting Star candlestick
This is one of the popular reversal candlestick patterns in the forex trading market.
Identifying features of this model include:
- The body of the candle is small.
- The upper shadow of the candle is 2 or 3 times the length of the candle’s body.
- The shadow of this type of candle below is almost non-existent.
- The color is usually blue or red.
The meaning of Shooting Star candles is when the market tends to fluctuate. Investors should wait for this candlestick pattern to be confirmed. The next candle is usually a bearish candle to confirm the downtrend. However, this model is not suitable for impatient investors.
Evening Star candlestick pattern (Evening Star candlestick type)
This is a Bearish candlestick pattern consisting of 3 combined candles. Characteristics used to identify this model are as follows:
- The first candle is a bullish candlestick pattern with a long body.
- The second candle is a small candle, with a short body, shaped like a star.
- The third candle is a bearish candle with a large body. The closing price is equal to the opening price of the first candle.
The meaning of the evening star candlestick pattern is if there is a gap between the first and second candles. At this time, the possibility of reversal will be very strong.
Tweezer Top Tweezer Top Candle
Tweezer Top is a double candlestick pattern with two candles that are quite similar. It’s just different in color: one is red and one is blue.
Identifying characteristics of Tweezer Top candles:
- The first candle is a bullish candle, with a long upper shadow, a small real body, and a short lower shadow.
- The second candle is a bearish candle, with long shadows and a small candle body. The closing price of this candle is equal to the opening price of the first candle.
Meaning of Tweezer Top: On the first candle, the buying side pushed the price up. However, after the market opened the next day, buyers tried to push prices higher but were unsuccessful. At this time, the sellers had the upper hand.
Effective trading strategy with a Bearish candlestick pattern
The Japanese candlestick reversal pattern can assist investors in placing buy orders and exiting trading products appropriately to preserve profits. To do this, investors need to comply with the following rules:
- Wait for confirmation: In addition to the reversal candle appearing, investors need to wait for the next candle to form. Then confirm the new trend before placing an order. Not being patient and placing orders right away can lead to losses. Especially when Price patterns forex often fluctuate unpredictably.
- Set a stop loss point: Before buying a coin, investors need to determine a stop loss point in all cases to minimize risks.
- Take profit: To decide the profit take point, investors can apply rules. For example, R: R or ratio 1:1, 1:2. Additionally, it is possible to take profits when the size of the reversal candlestick pattern has been reached.
- Combined with other technical indicators: This helps increase accuracy in identifying trends. For example, combining a bullish reversal candlestick pattern with strong support and resistance levels.
Conclude
Above, Forex Trading has summarized for readers about the Bearish candlestick pattern. Candlestick patterns play an important and useful role in investors’ trading strategies. However, every trading method has risks. Therefore, do not forget to apply other technical methods and appropriate capital management plans to protect your investment account.
Frequently asked questions
How to recognize a Bearish candlestick pattern on the chart?
A bearish candle can be recognized when the candle has a bearish body. The upper candle shadow is longer than the lower candle shadow.
What is the meaning of a Bearish candlestick pattern? What does it signal about market trends?
Bearish candles often signal a reversal from an uptrend to a downtrend. It shows the dominance of sellers in the market.
How to use a Bearish candlestick pattern in trading strategy?
The Bearish candlestick pattern can be used to place sell orders or set stop losses when trading in a downtrend.
