A bearish engulfing pattern is a two candle pattern. It is a reversal pattern and only occurs in uptrends. It is mainly found at the end of uptrends but can also be found at resistance levels. In the first candle, the price will push higher in the uptrend. The following candle will ideally have a higher high than the prior day but will close lower than the prior day, therefore “engulfing” the prior day’s candle. The psychology behind this formation is that the sellers have taken control by rejecting the higher price. The key to this pattern being a reversal pattern is a close below the candle pattern formation. More emphasis can be given to the pattern when the second candle has an increase of volume. Additional significance can be added when this pattern occurs when a stock reaches a new high or if a stock is at a resistance level. We will work to provide as many examples as we can to help you identify this pattern.
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