By Stella Goh – Market Data Analyst| 27 June 2018
Bearish candlesticks are probably the most important things we have to learn in candlestick pattern analysis. Every candlestick is delivering a unique and important message to us whether there is a selling or buying point. The tug war between bulls and bears will influence and decides the market. There are many different forms, patterns and size for a bearish candlestick. Let’s us look at these few common types of bearish candlesticks.
Bearish Engulfing Candlestick
The bearish engulfing pattern consists of a white candle, followed by a long black candle, mark by the first candle of upward momentum being overtaken or engulfed by a larger secondary black candle.
Before the Bearish Engulfing patterns occur, there are a bull controls which creates a definite of the uptrend. They will continue to push upwards during the crucial period. The second black candlestick formed when there is early buying pressure causes the security to open above the previous close, and the seller steps in and drive the price down, and the candle closes lower than the last.
The signal conveys a very drastic change in investor sentiment which allows investors to predict that a reversal on the horizon. When the bearish engulfing pattern is present, investors who will focus on short-term gains may choose to sell the due to changes of sentiment.
In Japanese term, “Harami” means pregnant, which means that the second candle determines the pattern of potency. The smaller the candle may have the higher the chance of reversal to occur. Bearish Harami formed at the end of an uptrend. It starts to develop with a relatively long white candle, followed by a relatively small black candle which is engulfing by the previous candle. This formation is showing that the buying momentum is weakening.
Bearish Tri Star Pattern
Bearish Tri Star pattern is a scarce reversal pattern which appears in the market that dominant in an uptrend and comprises by three Dojis candlestick. The first Doji always occurs in the uptrend which reveals that the market is indecision between buyers and sellers. The second body of Doji is higher than the previous Doji which emphasised more uncertainty, while the third Doji’s body is gap downward indicates that bears will soon to take over the control. These three Dojis strongly suggests that the trend is about to change.
Three Black Crows
Three Black Crows is a moderate trend of a bearish reversal pattern. It consists of three large consecutive long-bodied black candles. Each candle will be opened below the previous open and close progressively downwards than the same preceding candle. There should also be a little or no wicks formed on the candles.
Three Black Crows is an indicator that used to determine the weakness in an established uptrend and potential emergence of the downtrend. Therefore, when this happened in the uptrend, the negative market sentiment will push the price downwards, and this strong reversal will confirm that the upward price movement has ended. However, if the three candlesticks are overextended and make significant price declines, it could get into oversold territory.
Bearish Belt Hold
Bearish Belt Hold is a bearish reversal candlestick pattern. This candlestick pattern is straightforward to identify because it is formed by a single candlestick which is also known as Black Opening Marubozu that no upper shadow but with a small lower shadow.
This candlestick is always appearing after the stretch of the bullish candlestick. The opening price begins to decline against the overall trend of the market. It will eventually stop and close near to the low by leaving a small shadow at the bottom of the candle and formed a bearish candlestick. The longer the candle is, the more powerful and more significant it is. This candle should confirm by a bearish candlestick that developed in the next session.
Reading technical chart is essential knowledge to all investors. It helps every type of investors, both of short-term or long-term to take action accordingly to their strategies. Bearish candlesticks provide useful indications for short-term investor, and it helps long-term investors to buy relevant stocks at a lower better entry.