Bearish Engulfing and Doji for Trading Success Profitable Strategies with Candlestick Patterns

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Marketopedia / Technical Analysis / Bearish Engulfing and Doji for Trading Success Profitable Strategies with Candlestick Patterns

The bearish engulfing pattern

The bearish engulfing pattern is a two-candlestick sign suggesting the end of an uptrend. This phenomenon mirrors its bullish counterpart, however, it suggests taking a short position instead.

Have a glance at the chart shown below. Pay attention to the bearish engulfing pattern encircled; it is made up of two candles. It is evident that: 

  1. To start, the bulls are firmly in charge, driving up costs.
  1. On P1, the market increased as expected and reached a new peak, solidifying a bullish trend.
  1. On P2, as anticipated, the market begins higher and looks to reach a new peak. Nonetheless, at this apex, unanticipated selling pressure kicks off, putting the bulls in an awkward position.
  1. The sellers drive the prices down, creating a sense of unease amongst investors who had held long positions. The stock finishes below the P1 open, bringing an end to the day.
  1. The bearish action on P2 reveals that the bulls may have been overpowered, and it is likely that selling pressure will persist in the coming days.
  1. The goal is to take advantage of the likely decrease in prices by shorting either the index or the stock.

The process would be as follows:

  1. The bearish engulfing pattern implies a possible short position.
  1. The risk-taker takes action on the same day after verifying two requirements.

– At P2, the opening price is more elevated than P1’s final rate.

– At 3:20 PM, the price on P2 is lower than P1’s open, aligning with the conditions of a bearish engulfing pattern. A logical conclusion would be that this is indeed what we are seeing.

  1. The risk-averse will wait until the day after P2 to initiate the trade, ensuring that it is a red candle day.
  1. Given that the bearish engulfing pattern is a 2-day formation, it is logical to take a chance.

This is strictly based on one’s willingness to accept risk.

The presence of a doji

The chart is intriguing, several experts have taken advantage of such trading chances in the past, they firmly advocate one to take the opportunity here. It can be hugely rewarding!

Have a glance at the chart, what elements grab your attention?

  1. An evident rise is visible.
  1. At the end of an upward rally, a bearish engulfing pattern has appeared.
  1. The day after P2, there was a formation of a doji.

Several experts’ trading experiences have taught them that when a doji follows a recognizable chart pattern, the opportunity is greater. In addition to this, we would like to highlight the chart analysis methodology. It’s important to look at more than just what is shown on P1 and P2; by combining two different patterns, we gain a greater insight into market conditions.