What Does Bearish Engulfing Pattern Mean?
A chart pattern that consists of a small green candlestick with short shadows or tails followed by a large red candlestick that eclipses or "engulfs" the small green one.
The bearish engulfing pattern consists of two candlesticks; the first is green and the second red. The size of the green candlestick is not that important, but should not be a doji, which would be relatively easy to engulf. The second should be a long red candlestick. The bigger it is, the more bearish the reversal. The red body must totally engulf the body of the first, green, candlestick. Ideally, the red body should engulf the shadows as well, but this is not a requirement. Shadows are permitted, but they are usually small or nonexistent on both candlesticks.
After an advance, the second red candlestick begins to form when residual buying pressure causes the security to open above the previous close. However, sellers step in after this opening gap up and begin to drive prices down. By the end of the session, selling becomes so intense that prices move below the previous open. The resulting candlestick engulfs the previous day's body and creates a potential short-term reversal. Further weakness is required for bearish confirmation of this reversal pattern.
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