8 Best Bearish Candlestick Patterns for Day Trading [Free Guide & Video]

8 Best Bearish Candlestick Patterns for Day Trading [Free Guide & Video] Recently, we discussed the general history of candlesticks and their patterns in a prior post. We also have a great tutorial on the most reliable bullish patterns. But for today, we’re going to dig deeper, and more practical, explaining 8 bearish candlestick patterns every day trader should know. We’ll cover the following: What these patterns look like The criteria for confirming them The story these candles tell How to set entries and risk for each Some common mistakes when interpreting them. 8 Bearish Candlesticks Video Tutorial If you have a few minutes, our in-house trading expert, Aiman Almansoori has cut out a lot of the leg-work for us in this fantastic webinar. We’ve time-stamped the exact spot in the recording where he begins speaking about these 8 bearish candlestick patterns. Have a watch while you read! Also, feel free to use our quick reference guide below for bearish candlestick patterns! Be sure to save the image for your use with your trading and training in the market! What Bearish Candlesticks Tell Us Hopefully at this point in your trading career you’ve come to know that candlesticks are important. Not only do they provide a visual representation of price on a chart, but they tell a story. Behind this story is the belief that the chart tells us everything we need to know: the what being more important than the why. Each candlestick is a representation of buyers and sellers and their emotions, regardless of the underlying “value” of the stock. Bearish candlestick patterns typically tell us an exhaustion story — where bulls are giving up and bears are taking over. Many of these are reversal patterns. Check out or cheat sheet below and feel free to use it for your training! Without further ado, let’s dive into the 8 bearish candlestick patterns you need to know for day trading! 1. The Shooting Star In case you were wondering, the names of candlestick patterns usually describe a visual representation to something in real life. The Japanese were fond of naming them that way. The shooting star is no exception. When it occurs, it will be at the height of a current uptrend — typically an extended trend. It’s a lot like a shooting star falling from the heights of the heavens. At the end of that trend, the stock experiences one last effort to push higher, only to reverse on itself. Hence the name, shooting star. It goes up, only to fall back. Entry Where would you enter? More aggressive traders may anticipate the reversal as the candle is forming. Otherwise, you can wait until the close of the shooting star, enter, and set your stop at the high of the shooting star candle. Shooting Star Example AMC provides a great example of this pattern during a recent intraday session. Notice that the trend was clearly upward and becoming extended. The stock makes a climactic push to new highs, then reverses on increased volume. AMC with a fantastic example of a Shooting Star Also, notice that the second reversal candle beyond the shooting star. It retraces slightly into the wick of the shooting star. This is a great example of why your stops/risk need not be too close, or wait for entry on the second candle. For a more granular look at this pattern, check out our post on how to trade using the Shooting Star. 2. Bearish Engulfing Crack This reversal pattern can be seen in different contexts. It can occur off the open, or in an extended uptrend. The thesis behind the pattern points to strong supply levels that completely surpass the effort of bulls to push a stock upwards. The result: the price opens above the preceding candle, then commences to sell off forcefully. The body of the candle completely “engulfs” the prior candle, and should close below it. Entry There can be a few discretionary entries on this pattern depending on experience. Aggressive traders may choose to enter as the candle is forming, if supply is clearly visible. This is more of an anticipatory entry. If trading “by the book”, you may want to wait until the new low is confirmed, then enter on the next candle. Ideally, you want to trade in either the direction of the larger trend, or enter as an overextended trend reversal. Set your stop in the body of the candle or at the high of the candle depending on its range. Bearish Engulfing Examples FCEL is a perfect example of this bearish candlestick pattern on the 5-min chart. Notice that the stock is trending downward from the pre-market. It is also struggling with VWAP, the red indicator line on the chart below. FCEL with an opening range breakdown and Bearish Engulfing Crack Off the open, the stock tries to push higher, but we notice some selling pressure in the upper wick of that first green 5- minute candle. The price then moves lower,engulfing that candle with ease of movement to the downside. This just happens to be a great example of an Opening Range Breakdown as well. BA provides us with another look at this bearish candlestick pattern in a different context. BA with an overextended bearish engulfing candle Notice the reversal from an extended intraday run here. Just like the example above, the 5-minute candle completely engulfs the prior candle. This time, it is with increasing volume. What does that tells us? Think in terms of effort vs. result. The effort (volume) increased and the result (price) was a complete retracement downward (link to effort/result). This gives us the confidence to go short, risking toward the highs. 3. Bullish Engulfing Sandwich Do not be confused by the name. This is also called a “stick sandwich”. It is not a bullish pattern in this particular scenario. The point here is that the “bullish” engulfing candle in the middle of the pattern is “sandwiched” by bearish candles. In this instance, it takes more than a single supply candle to overcome the demand. It takes three or four candles for the pattern to confirm. First, you have what appears to be a bullish engulfing candle (the opposite of the bearish engulfing candle we just identified above). Then, instead of confirming new highs, the stock reverses again. Context is everything here. In the example below, you’ll see that the general trend is downward. For this reason, the bullish engulfing sandwich can be thought of as a continuation pattern. Entry Entry is on confirmation of a breakdown — lower lows on the reversal candle. Stops can be set in the body of the candles above. Bullish Engulfing Sandwich Example FUBO provides a fantastic opportunity to see this bearish candlestick pattern in action right at the opening of the market. FUBO intraday Bullish Engulfing Sandwich pattern Notice that the trend is downward from the premarket. It was also continuing downward from the day before. The stock stalls at vwap, struggling. It tries to reverse, but notice the volume on the green reversal candle. It is no match for the supply in the first 5-minute candle of the day. The effort in that first candle dwarfs the efforts of the bulls. The stock then reclaims vwap, its downward trajectory, and the bulls submit to the bears one more time. Learn more about this bearish pattern and it’s bullish counterpart in our blog post coveringthe Stick Sandwich. 4. The Evening Star We’ve included the Evening Star with the Evening Doji Star because they are very similar, both in style and in context. Each are bearish candlestick patterns. Leading into the star, you’ll need to spot a wide bodied candle. The star itself is the narrow body indecision candle that follows the upward wide-body candle. Entry The confirmation comes with the breakdown on the longer bodied bearish candle. A great place to enter, risking off the highs of the doji candle. This pattern works particular well at the high of the day as a trend reversal. But it can also be a trend continuation pattern if it appears at the top of a short-lived rally into prior resistance. Evening Star Example In this intraday example with GME, we notice that the upward trend has been strong. For the first hour+ of the morning, there have been few, if any pullbacks. GME with an evening star pattern playing out intraday However, we notice some selling pressure coming on this 5- minute chart just before 10:30am. Typically we might have played that as a shooting star, but we never got the breakdown confirmation with a close below the body of that candle. Despite the failed breakdown on the shooting star, it is a warning sign that supply is coming into the market. The alert trader keeping his/her eyes open for any signs of reversal on this overextended stock would notice the Evening Star forming on increasing volume. Again, the effort (volume) is there, but the result (price) is a small doji candle. How can we interpret this? It is likely that there is plenty of profit taking going into this GME Evening Star candle as FOMO (fear of missing out) retail buyers chase the stock higher. Strong hands are taking the opportunity to sell their shares. This gives the attentive trader an opportunity to capitalize by going short. 5. Tweezer Top The tweezer top is yet another reversal pattern or continuation pattern. The 1st element is the wide body bullish candle signaling potential exhaustion in an uptrend.

Load more