They indicate strong selling pressure and validate the pattern’s reliability. Modern trading platforms can simplify identifying this pattern by integrating technical indicators and volume analysis, helping traders act with more confidence 1 2. If the volume increases across the three candles, it adds weight to the bearish signal, indicating growing selling pressure.

Aggressive traders may choose to enter as the candle is forming, if supply is clearly visible. 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. This is the biggest mistake that you can make, i.e. relying only on the formation of the pattern. You should combine the pattern with other technical indicators and use stop-loss orders to limit possible losses.

Dark Cloud Cover

• That’s a classic shooting star – a visual signal of buyer exhaustion at the top of an uptrend.
• This gives the attentive trader an opportunity to capitalize by going short.
• The Harami pattern is one of the most versatile and dynamic candlestick patterns that you will come across.
• Mastering individual candlestick patterns is only half the battle; the second part is knowing how to interpret reversals in the greater context of market structure.
• Ensure there’s sufficient volume to confirm whether the pattern is valid.
• The body can be either red or green and is located at the bottom of the trading range.

Additional confirmation can be obtained from technical indicators like MACD and RSI, which help identify overbought or oversold conditions. Bearish patterns are more dependable when they appear near resistance levels. Look for volume increases, alignment across multiple timeframes, and clear trend signals to strengthen the reliability of these patterns 2. The Abandoned Baby pattern is a bearish reversal signal that stands out due to its three-candlestick structure. If the third candle shows higher trading volume, it adds weight to the pattern, signaling strong selling pressure 2.

As you can see, the largest amount of volume comes as BTBT tries to rally above the pre-market highs. Occasionally the market gifts us with a nice double top failure in an overall downtrend. RIOT gave us this opportunity intraday recently as it pulled back from the morning lows, only to find resistance at vwap.

Bearish Doji Candlestick Pattern:

So there we have 8 of the most common bearish candlestick patterns. Now you’re probably wondering how to spot them in real time. Used in isolation, not even the best reversal candlestick consistently predicts trend reversals with complete accuracy. At the end of the day, good candlestick reversal patterns Forex traders can use are the one that fits cohesively into their own trading plan.

• The Bearish Engulfing pattern forms when a large bearish candle fully engulfs the body of a smaller bullish candle.
• For the bearish pattern, it must first have a solid green or white bar continuing the uptrend.
• Look for volume increases, alignment across multiple timeframes, and clear trend signals to strengthen the reliability of these patterns 2.
• As the stock tries to rally into resistance, you can anticipate the end of the rally.
• Picture a candle standing tall at the end of a race – wobbly, spent, ready to fall over.
• There are many other reliable downtrend reversal candlestick patterns.

Candlestick patterns can have some crazy names sometimes. The Japanese were fond of naming candlestick patterns after real-life visual representations. A hammer candle means little without considering the story of price action, market conditions, and sentiment. The wise trader zooms out bearish reversal candlestick patterns to understand how reversals fit into the larger picture.

Being able to quickly spot these candlestick patterns on a chart can help you profit from short-term changes in market sentiment. Mastering key bullish and bearish candlestick patterns gives you an edge. You can gauge supply/demand dynamics and spot turns early.

Top 7 Bearish Reversal Patterns Explained

While the Dark Cloud Cover highlights bearish momentum, patterns like the Evening Star can also provide valuable insights into market reversals. The gaps are not an absolute must for this pattern but the reversal signal will be stronger if they are present. 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. It tries to reverse, but notice the volume on the green reversal candle.

How to Trade Bearish Candlestick Patterns

To be considered a bearish reversal, there should be an existing uptrend to reverse. It does not have to be a major uptrend, but should be up for the short term or at least over the last few days. Bearish confirmation means further downside follow-through, such as a gap down, long black/red candlestick, or high volume decline. Though the Bearish Engulfing pattern is a strong reversal signal, other formations, such as the Dark Cloud Cover, can also highlight changing market sentiment.

Shooting Star in Different Markets

It looks like a red candle with a short body at the top and a long lower shadow, several times longer than the body. The upper shadow is either very short or completely absent, highlighting the weakness of buyers. We’ll cover classics like the shooting star candlestick, dark cloud cover, and inverted hammer candlestick pattern. There are over a dozen bearish reversal candlestick patterns in total, some more popular than others. I’ll share the most useful to know as you monitor price actions.

In this article, we’ll explore must-know bearish candlestick patterns. Knowing these formations helps you spot potential reversals and downside momentum early. If a bearish candlestick follows the Shooting Star, it confirms the trend reversal signal. Traders often use this pattern to open short positions as it strongly signals the end of the uptrend and weakening momentum. Typically, we like to use bearish candlestick patterns to sell stocks.

Reversal Candlestick Patterns – A Beginner’s Guide for Traders

Another way you can use bearish candlestick patterns to buy/sell stocks is to use these as sell signals. In other words, if you have been long in a position and you see a bearish candlestick pattern, you might know that it is now time for a reversal. This can give you confidence to some of your profits before the reversal. Now that you know what makes candlesticks bullish or bearish, let’s examine some of the most reliable reversal patterns to trade.

It is crucial for identifying key reversal points in a trend. Using support and resistance levels, traders can effectively plan their actions while considering the current market conditions to minimize risks. The Evening Star typically forms at the top of an uptrend, showing weakening buying activity and increasing dominance of sellers.

Bearish Harami

Depending on the range of the candles, you can enter aggressively as the tweezer is forming, especially if supply appears heavy. As a bearish pattern, the two candles should share roughtly the same high if possible. The tweezer top is yet another reversal pattern or continuation pattern. 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.

Bearish gap down candlestick pattern is also statistically powerful, with one analysis showing opening gaps down led to further losses over 60% of the time. These gaps act as breakaway gaps signaling a rush for the exits. One study found the bearish pin bar candlestick pattern produced winning short trades nearly 70% of the time, with an average gain per trade of 1.2R. The large wick reflects strong rejection of higher prices.

At the end of that trend, the stock experiences one last effort to push higher, only to reverse on itself. This helps you isolate setups that happen when the stock is already stretched, making reversals more likely. Once you’ve flagged potential shooting stars, you can add a few extra layers of logic to boost accuracy and filter out noise. The following session opened lower, confirmed the bearish shift, and $NVDA dropped over 6% from its high, within the next five trading days.

The indecision of the reversal doji candlestick followed by the larger bearish candle is what creates the confirmation of a bearish trend reversal. There are many other reliable downtrend reversal candlestick patterns. Mastering even one or two can help you trade downtrend breakouts profitably. Mastering the most common reversal candlestick patterns takes practice but being able to spot them in real-time will make you a savvier price action trader. The Three Black Crows candlestick pattern is made up of three consecutive bearish candles, each opening near the previous candle close and closing at a lower level.