the hAnDbook of technIcAl AnAlysIsfigure 14.24 Bearish Engulfing on the Daily Chart of Gildan Activewear Inc.
Courtesy of Stockcharts.com
Description:■ (^) The bearish engulfing formation is a double candlestick reversal pattern. See
Figure 14.23.
■ (^) The first candlestick should be a bullish candlestick followed by a larger
bearish candlestick. The second candlestick gaps up above the close of the first
candlestick and subsequently reverses back down and closes below the low of
the first candlestick.
■ (^) The upper and lower shadows are not significant.
■ (^) It is best found in a protracted uptrend that is beginning to display weakness.
■ (^) Its corresponding bullish version is the bullish engulfing.
Psychology:
■ (^) The bearish engulfing formation is extremely bearish. It depicts a clear turn-
around in bullish price action after gapping up aggressively. The sellers drive
prices all the way down to below the low of the first candlestick, and make it
very clear that the bears are now in control.
Trigger, Stoploss, and Confirmation:
■ (^) The trigger is at the low of the second candlestick.
■ (^) To confirm the reversal, price needs to close below the trigger level.
■ (^) The stoploss is placed at the high of the second candlestick or pattern.
■ (^) A buystop entry order may be placed at the high of the second candlestick
only if there is evidence that the trend is still in effect.
See Figure 14.24.