Bearish Engulfing

Bearish Engulfing for NT8

The bearish engulfing pattern is a two bar reversal pattern where the first bar is an up-close or a doji bar. The second bar is a large body down-close, closing below the body low of the prior candle. The candle wicks are not considered for this pattern.

What is a Bearish Engulfing Pattern

As the name implies, the first candle’s body is engulfed by the second. However, the pattern should not be interpreted simply as bullish price action followed by bearish rejection. In order for the bearish engulfing pattern to form, the price must open at or above the close of the prior bar. If that is not the case, the bearish candle would not meet the “engulfing” requirement.

To determine the large body requirement, a minimum threshold has to be met. This is done by making a comparison to the average bar size found in the reference period. The minimum large body threshold, as well as the reference period used to establish the average, are adjustable.

When identified as a reversal, the pattern will occur during a minor bearish swing trend. The trend bias specifications are user selectable via the indicator dialogue box, as per the deviation type and multiplier settings. The bullish equivalent to this pattern is the Bullish Engulfing.

As with other reversal setups, the statistical probability may improve when combined with trend analysis or momentum oscillators. More information on combining other technical indicators with candlestick patterns available here.

Other bearish candlestick patterns

Other bearish candlestick patterns include the bearish belthold, bearish harami, bearish harami cross, black marubozu, dark cloud cover, shooting star, gravestone doji, hanging man, evening star, evening doji star, long black candle, tweezers top, three black crows and the falling three methods.

The bearish engulfing and the above patterns may be identified with our candlestick pattern indicator for NinjaTrader 8. Check out the LizardIndicators Premium Section for more information.