Wednesday, February 10, 2021

How To Trade Forex With The Bearish Engulfing Candlestick Pattern

In the Engulfing candlestick pattern pair, the opposite of the Bullish Engulfing candlestick pattern is Bearish Engulfing. In this article, I will introduce to you this strong reversal signal. Along with that is how to trade Forex with the Bearish Engulfing candlestick pattern in the most effective way.

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What is a Bearish Engulfing candlestick pattern?

Bearish Engulfing candlestick pattern is a warning signal that the market will strongly reverse from bullish to bearish. This pattern consists of 2 candles with the first green bullish candle and the second strong red bearish candle covering the previous one. The second strong bearish candle is called the engulfing candle.

In Forex, every time this pattern appears, traders will consider opening SELL orders. This is on the basis that prices are likely to reverse down.

What is a Bearish Engulfing candlestick pattern
What is a Bearish Engulfing candlestick pattern

Meaning

Combine two candles of Bearish Engulfing (A) => The price decisively reverses from bullish to bearish (B) => Shooting Star candlestick or Bearish Pin Bar (C). This is a familiar bearish signal.

Meaning of the Bearish Engulfing pattern
Meaning of the Bearish Engulfing pattern

Although the direction of the price is similar to the Shooting Star (Bearish Pin Bar) candlestick, this pattern has higher accuracy because it is a combination of two candlesticks (which takes a longer time).

On the price chart, this pattern may appear at the end of uptrends. It is a reliable signal that the price could reverse from bullish to bearish. Sometimes, it also appears during downtrends, warning the continuation of the downtrend.

Positions on the price chart
Positions on the price chart

Some variant candlestick patterns

With this pattern, the second candle is very important. So in some cases, you can see its variants appear as shown below. A bearish candlestick completely eliminates the bullish momentum of the previous candles.

Some variant candlestick patterns
Some variant candlestick patterns

How to trade Forex effectively with the Bearish Engulfing candlestick pattern

Below, I will guide you to open basic Forex orders with this pattern. For a safe transaction and maximum profit, you need to define the exact entry point, stop-loss, and take-profit.

*Notes: This is a signal that the price will reverse to bearish. Therefore, you can only open SELL (Short) orders when this candlestick pattern appears.

Strategy 1. Fish the top of the market

This trading strategy is quite risky because it is a SELL transaction at the top of the market. However, if the price goes according to the scenario, the profit will be maximized. Place a SELL order when the price is in an uptrend and hits the top to create a Bearish Engulfing pattern as follows:

+ Entry Point: As soon as the price completes the pattern.

+ Stop-Loss: At the highest point that the price touches and then turns down.

+ Take-Profit: When the price touches old support levels that have been formed in the past.

Fish the top of the market
Fish the top of the market

Strategy 2. Trade following the downtrend

This trading strategy is very safe because the price is already in a trend. The basis is that when the Bearish Engulfing pattern is created, the downside momentum will be strengthened. You just need to wait patiently for the pattern to appear to open orders. How to open a SELL order is as follows:

+ Entry Point: As soon as the price completes the pattern.

+ Stop-Loss: At the nearest resistance before the pattern forms.

+ Take-Profit: When the price touches old support levels that have been formed in the past.

Trade following the downtrend with the Bearish Engulfing in Forex
Trade following the downtrend with the Bearish Engulfing in Forex

Get to know Bearish Engulfing today because this is an extremely reliable price signal in Forex. Understanding and applying flexibly this candlestick pattern will help you a lot in trading. I wish you successful transactions.

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The post How To Trade Forex With The Bearish Engulfing Candlestick Pattern appeared first on How To Trade Blog.



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