A bearish engulfing pattern occurs in the candlestick chart of a security when a large black candlestick fully engulfs the small white candlestick from the period before.
This pattern usually occurs during an uptrend and is believed to signal the start of a bearish trend in the security.
How to identify
- The color of the 1st day’s body reflects the trend, however could be a doji.
- The 2nd day’s real body engulfs the 1st day’s body.
If not much volume occurs on the 1st day of the Bearish Engulfing pattern compared to the 2nd day, then this increases the strength of the pattern.
The 2nd day opens above the close of the 1st day, however quickly sells off to finally close below the open of the 1st day.
This damages the spirits of the longs and brings into question the bull trend which prompts additional selling in the coming days.