Do you know how to trade bearish engulfing pattern correctly? Or are you losing trade after trade when trading this pattern. If so, then you're in the right place!
You can trade the bearish engulfing pattern, when price breaks a key level of market structure or a technical price pattern. Trading of formed swings in the market, and in the direction of the overall trend. It can also be traded counter trend using reversal price patterns.
In my own experiences I have come to find the best way to trade this pattern is to make sure you trade it from swings within the market. Even more so, is trading the bearish engulfing with the trend direction to be more successful.
If you've been considering how to trade this candlestick pattern...I have outlined below the same exact steps you need to take to trade the bearish engulfing candlestick pattern successfully.
With trading the Forex markets, it's critical for your success to know how to find those important bearish turning points on a price chart. More so, it's even more important to know what candlestick patterns you need to identify at these market reversal points.
The best part?
By the time you've finish today's lesson, not only will you know how to identify these turning points in the market. But also how to trade bearish engulfing pattern successfully.
Things to consider when looking to trade this setup....
- The Bearish Engulfing Pattern range must engulf the candle preceding it (In other words it must engulf the previous candles high to low range)
- A Bearish Engulfing Pattern must form at a swing high (This being the turning point for this candle)
- The Candle is not to have a long lower wick (This would show buyers in the market)
- The body of the candle must also engulf the previous candles body (Demonstrates strong bearish session)
What Exactly Is The Bearish Engulfing Pattern?
Explanation of the Bearish Engulfing Pattern
The bearish engulfing pattern is basically showing sellers taking control at a key level of market resistance. Typically this will form at a swing high in the market, from a lower high formed within a down trending market. To have a better understanding of how these swings are formed with a trending market condition.
Check out one of my latest trading lessons on a swing trading approach, which you can find the link to this trading lesson below.
Or this setup can be traded from a swing high within a range bound market, or using a technical price pattern. Therefore, either of the these setups you could trade, this pattern is a very powerful signal when spotted within one of these locations. Lets take a look at what a bearish engulfing candle actually looks like.
How The Bearish Engulfing Pattern Looks
The Bearish Engulfing Pattern
If you take note from the above picture, the Bearish Engulfing body does not engulf the previous candles ranges but does engulf the candle bodies. The other bearish engulfing here, can be when the body of the candle engulfs the previous candles high to low, but is not necessary.
The makeup of the bearish engulfing pattern shows buyers tried to push prices higher but failed miserably, with sellers taking control and closing price very bearish. Reading that out aloud, reminds me of the time when I tried to climb a climbing wall.
I was there with my friends, and I had just about reached the top of the wall, and you guessed it I got pushed back down and fell down miserably then too! Just like the bearish engulfing, I made a false break at the high of the wall.
This type of setup is called a false break, where buyers would have been trapped in the buying position. Hence why price plummeted very heavily, as stops would have been taken as price surpassed the previous two candles lows.
How To Trade Bearish Engulfing Pattern
Even though there are many different ways to trade this pattern, within this next part of today's trading lesson. I'm going to cover how I actually trade the bearish engulfing pattern. My strategy I'm about to share with you will cover the following important entry criteria components, before taking this setup.
- A Bearish Engulfing must have formed and closed
- Coming of a swing high
- Broken a key level of support and testing from below as a resistance
The best way I have personally found to trade this pattern, is when price breaks a key level of market structure. Or a technical price pattern, which you can learn more on the different types of patterns that can be traded by checking out my basics of Forex trading.
With a break of support and then a test from below showing this support is now acting as a new resistance. This as I suggested at the beginning of today's lesson is normally with the trend direction, and used with a swing trading approach.
Hopefully you've had a chance to read through that trading lesson all about swing trading. As this will make this lesson today much more clear on the entry criteria.
Formation coming of a Swing High
Why does this matter?
On the above chart, take note of the bearish engulfing that is coming of the swing high in the market. It is also coming of a key level of broken support now acting as a resistance level. This setup gave me a very good sell trade with room to the first support at the previous Daily lows.
These are the types of setups you will want to pay close attention to, as they will form as your bread and butter trades throughout your trading career.
Now you've seen a swing trading approach with how to trade bearish engulfing pattern. Lets investigate further what this would look like with a technical price pattern. Talking of technical price patterns, if you're struggling with your trading and could do with some pointers.
Then I suggest you check out my latest trading lesson....
There are some great tips within this lesson to help you understand trading technical patterns profitably.
Trading the Pattern with a Ascending Channel
This time you will see the bearish engulfing pattern occurs after the break and test of a ascending channel. So, just like when I showed you the example of the key level for a test from below. Which acted as a resistance, the ascending channel also acts as a resistance from below with a bearish engulfing.
Catching these setups, will normally be a shift in the trend direction and as you will see from the posted chart. Price continued to fall heavily after the bearish engulfing pattern. When trading these candle patterns as on the chart above, you will need a good understanding of technical patterns.
I suggest to start with taking trades with using key levels of support and resistance. Then once mastered, you can move onto trading the bearish engulfing with technical patterns.
Wrapping things up!
The important things to always remember when trading the bearish engulfing pattern.
- Always trade them from swing highs
- Trade them of a key level or a technical pattern
- Make sure it's a valid candle and engulfs the preceding candles
- Never trade this candle pattern until the candle is closed