Nothing lasts forever and market trends change their direction too. The points of such reversals seem to be ideal trade entry opportunities. But what is a good way to predict a change in a trend?
There are some patterns that can help traders in finding trend reversal points. And today I will present one of such patterns. It is called the bearish engulfing pattern.
How to recognize a bearish engulfing pattern on the Binomo platform
There are several requirements for the bearish engulfing pattern to appear.
This is a pattern that signals a reversal of a trend. It forms at the top of an uptrend when bulls begin to lose control over the market. Bears come in and drive the price down.
Then there are two candles that form a pattern. One is bullish and the second one is bearish. The condition that must be met is that a bullish candle is much shorter than the following bearish one. Moreover, a green candle cannot be a special Doji candle.
The name of this pattern is the bearish engulfing pattern. This means that the green candle should be entirely absorbed by the red one. And the reversal is assumed to be stronger when a bearish candle is significantly longer.
The bearish engulfing candlestick pattern
Let’s quickly summarize information about the bearish engulfing pattern.
It forms during an uptrend at its highest point.
It consists of two candles. The first one is green, the second red.
The bearish candle’s opening is lower than the closing point of a bullish candle. And it closes higher than the point where a bullish one opens. With liquid assets like currency pairs it is usually enough if the body of a red candle is significantly bigger than the one of a preceding green candle.
How to trade with the Bearish Engulfing pattern on the Binomo platform
The most important thing is to recognize the bearish engulfing candlestick pattern. But you have just learned how to do this. Now you have to wait for the next candle to develop. A bearish candle is expected as a confirmation of a downtrend.
This is a moment you should open a sell position.
Consider the chart below.
You can notice a temporary uptrend. Then it comes to exhaustion and a bearish engulfing pattern develops. Right after the red candle is finished, you enter a trade for a price decrease.
Reversals of a trend create perfect opportunities to open trading positions. You can use special patterns like the one described in this article to predict a change in the price direction.
The bearish engulfing candlestick pattern develops at the top of an uptrend. It is relatively simple to identify and pretty effective in use.
Bear in mind the first candle in the pattern is not supposed to be a Doji.
Open short positions that last at least the time that is equal to your chart time frame. You can use a bearish engulfing pattern with other techniques such as support/resistance levels or Fibonacci retracements to gain a better return percentage.
Remember there is the Binomo demo account where you can practice employing the bearish engulfing pattern in your trading. Tell us in the comments section below about your experiences with this candlestick pattern.
Enjoy your trading!