Reversal candlestick patterns are one of the effective tools in forex trading. Traders often use it to describe price movements. So what is the nature bearish reversal candle ? What types of models are there? Let’s find out with Forex Trading through the article below!
What is bearish reversal candle?
Reversal candles are the most used pattern by traders when doing technical analysis. There are 2 types of candlestick reversal patterns, bearish and bullish. Specifically:
- Bullish reversal pattern: Appears after a downtrend, showing the price turning up.
- Bearish reversal pattern: Appears after an uptrend, showing the price turning down.
Through this candlestick pattern, traders can grasp when the price will reverse. From there, exit the order or look for opportunities to open good positions to increase profits.
What is bearish reversal candle?
As mentioned, the bearish price reversal candle is a signal that helps forex traders know when to exit the order and avoid heavy losses. In other words, this pattern signals that the uptrend is about to end. The market entered a downtrend at least in the short term. When seeing signs of this candlestick pattern appearing, traders will consider closing the order to preserve profits.
See more: Read candlestick charts: Basic & advanced material
Instructions on how to view Japanese candlestick reversal charts
To know which candle is a reversal candle, you need to learn how to read Japanese candlestick charts. Japanese candles consist of two main parts: the candle shadow and the candle body. In there:
- Candle body: A set of prices, representing the range between the opening and closing prices, over a certain period of time.
- Candle shadow: Shows the upper and lower price range of a forex commodity.
In other words, each Japanese candlestick provides the trader with all the necessary information. From the opening price, closing price, highest and lowest price within a specified period of time within the time frame on the chart. Specifically:
- Green candlestick: Opening price < closing price, meaning the price increased.
- Red candlestick: Opening price > closing price, meaning the price decreased.
Patterns bearish reversal candle
Below are some popular bearish price reversal candlestick patterns, signaling an uptrend is about to end, followed by a downtrend.
Tombstone Doji candle
This Japanese candlestick pattern is the most chosen by traders when analyzing transactions. The English term for this Doji candle is Gravestone. When the tombstone doji candlestick appears, there is a high possibility that the market is about to enter a downward phase after a period of rising prices.
You can identify this candle based on the following characteristics:
- Single candle shape, no candle body.
- Long candle shadow.
The Doji tombstone candlestick pattern shows that purchasing power is still strong and prices will continue to increase continuously. At the top of the trend, sellers will increase rapidly, causing the market to move in a downward direction.
If you see the longer shadow of the Gravestone candle, the selling pressure is stronger. Signaling a stronger downward trend reversal. If you seize this opportunity, the odds of winning are extremely high.
Engulfing reversal candlestick pattern
This is a double candlestick pattern, strong bearish reversal, appearing at the end of an uptrend. You can recognize this model through its characteristics:
- The first candle is a bullish candle.
- The second candle is a bearish candle, covering the first candle.
In addition, if the first candle is green, it shows that the market is not yet certain. On the contrary, if it is a red candle, the signal that sellers are overwhelming buyers is very clear. Besides the color, the strong bearish reversal signal is also shown through the length of the second candle.
Shooting star reversal candlestick pattern
The English name of this model is Shooting Star. You can recognize shooting star reversal candles through characteristics such as:
- The candle shape is similar to the Doji candle.
- Small candle body.
- The length of the upper candle shadow is 2 to 3 times the candle body.
- The lower candle shadow is barely visible.
- Color: Blue or red.
In a volatile market, you need to patiently wait for the confirmation signal of the shooting star reversal candlestick pattern. Then observe the next candle. If it is a bearish candle, then entering the order will be effective.
Evening Star model
Evening Star candle is one of the most popular bearish reversal candle patternsSome identifying characteristics include:
- The first candle is a bullish candle with a long body.
- The second candle has a small, short body, very similar to a star.
- The third candle is a bearish candle, with a large body, the closing price is within the first candle.
- The odds of a reversal are stronger the greater the distance between the first and second candles.
Tweezer top Japanese candlestick pattern
This Japanese candlestick pattern has the English name Tweezer Top. This is also a double candlestick pattern with two relatively similar candles. The only difference is in color, 1 red candle and 1 green candle. To recognize the Tweezer top candlestick pattern, you need to base it on the following characteristics:
- The first candle is a bullish candle, a small body, long upper shadow, and short lower shadow.
- The second candle is a bearish candle, a small body, long shadow, and closing price equal to the opening price of the first candle.
With this reversal candlestick pattern, buyers push the price up as shown in the first candle. The next day when the market opened, buyers continued to try to push prices up but failed and were overwhelmed by sellers. At this time, traders can consider entering a sell order.
See more: Exness – Trade With The World’s Leading Broker Exness
Effective trading strategy when encountering bearish reversal candle
Reversal candlestick patterns help traders open and close orders appropriately. However, to be successful in forex trading, signals from candlestick patterns are not enough. Needs to be combined with the following effective trading strategies:
Enter orders
When a signal bearish reversal candle appears, traders need to wait for the next candle to more clearly confirm the trend before entering an order. Prices fluctuate continuously, and the situation can change continuously. Therefore, you need to be patient and wait to test the trend again accurately.
Cut losses
In the foreign exchange market, nothing is absolutely certain. Therefore, you need to know how to cut losses at the right time to minimize risks. You should cut your loss with a distance of 2-3 pips to avoid the situation of candles withdrawing their legs.
Identify the trend with the double bottom model
Double bottom pattern forex is extremely popular with traders when doing technical analysis. Combining a bearish reversal candle with this pattern will help traders identify changing trends. At the same time, measure the price reversal force within a certain period of time. The double bottom pattern often forms during a downtrend.
Note when trading with bearish reversal Japanese candlestick charts
- Be patient and wait for the signal from the closing candle to know the exact pattern bearish reversal candle is established.
- The best time frames to help you determine when to close candles include M1, M5, M15, M30, H1, W1, and MN. The H4 and D1 time frames will hardly help you see the candle closing time.
- Always set take profit and stop loss levels to optimize profits and reduce risks.
- Combined with other analysis tools such as MA lines, trend lines, RSI, resistance, support,…
Conclude
Above, Forex Trading has provided you with all the important information about bearish reversal candle. Apply this useful tool to forex trading strategically. At the same time, follow Forex Trading to cultivate a lot of useful knowledge about foreign exchange trading!
FAQs
What is a bearish reversal candle?
This is a candlestick pattern in technical analysis. It reflects a change from an uptrend to a downtrend. Usually appears after a series of bullish candles and signals the weakening of the current uptrend.
How to recognize bearish price reversal candles?
A candlestick with a long blue or white candlestick represents the strength of the buying side. At the same time, there is a small upper shadow and a long lower shadow, indicating increased selling pressure.
Is it necessary to combine bearish price reversal candles with other indicators?
Need. You should combine reversal candles with other technical indicators such as MACD, RSI and some other price models. This helps you confirm the reliability of forex signals. From there, make better trading decisions.
