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What are the most common Bearish patterns used by traders?

Modified on: 2018/07/11
A:

The bearish engulfing pattern may occur at the top of a longer-term uptrend or a corrective retracement during a downtrend. The bearish engulfing pattern is a two-candlestick formation. The first candle closes higher, with a long body and usually minimal shadows. The second candle is the engulfing candle down; from open to close, it completely engulfs the first candle's body, if not the entire range of the first candle. It is the complete reversal of momentum – the second candle more than completely erasing the gains made by the first candle – that gives this pattern its distinctly bearish implication.

Double Top Pattern

The double top is a pattern that may take some time to unfold, but it is considered a very reliable bearish reversal indication, derived from basic principles of support and resistance. The pattern is formed when a market reaches a new high, retraces downward a significant distance and then moves back up to challenge the resistance level of the established high. However, it fails to move higher and eventually drops below the retracement low, usually beginning a sustained downtrend. The double top first establishes, then tests, a major resistance level. The market's failure to overcome the established resistance is the first reversal signal. The signal is confirmed when the price falls below the low of the initial downward retracement.

Evening Star Pattern

A very visually striking three-candlestick formation, the evening star pattern is formed by a strong up candle that closes near its high, a second candle that gaps above the first and features a small body, and a third candle that gaps below the second and extends downward to close past the midpoint of the first candle's body. The two gaps that leave the second candle in isolation above the other two candles provide a strong visual image of exhausted upside momentum.


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