Candlestick patterns are fundamental for beginner traders to learn. They are easy to grasp, but challenging to master. A deep understanding of various candlestick patterns allows traders to identify market trends and potential reversals before it’s too late.

Indicator tools like TradeDots on TradingView can effortlessly detect bearish patterns and provide sell signals to traders, simplifying the buying and selling process. You can try it out for free.

Previously, we discussed the “Top 6 Bullish Candlestick Patterns” In this blog, we will continue the topic and delve into the “Top 5 Bearish Candlestick Patterns”.

The Top 5 Bearish Candlestick Patterns

1. The Bearish Engulfing

The bearish engulfing pattern occurs when a small green candle is followed by a larger red candle that completely engulfs the previous candle’s body.

This pattern indicates a shift in market sentiment from bullish to bearish. It is particularly accurate when it forms at key resistance levels or after a prolonged uptrend. Traders use it as a signal to sell or short a security. However, it does not guarantee a complete reversal in price movement, so it is important to consider the overall trend of the asset. The size of the green candlestick is relatively unimportant, but the red candlestick should be long and completely engulf the green one.

Shadows are usually small or nonexistent. The pattern is confirmed when selling pressure drives prices below the previous open.

Let’s examine an example using the Tesla stock. As the stock approached a previous resistance level, the red candle completely engulfed the green candle from the previous day, indicating a downward trend towards the supporting trend line and causing a price reversal.

2. The Dark Cloud Pattern

The dark cloud pattern occurs when a bullish trend is interrupted by a red candlestick that opens above the previous day’s close and closes below the midpoint of the previous green candlestick.

This pattern suggests that bears are gaining strength and could potentially take control of the market. While it is not always accurate, it serves as a warning sign for traders to exercise caution and adjust their positions accordingly. Sellers step in after the strong open, pushing prices lower and driving them below the midpoint of the white candlestick’s body. Further weakness is required for bearish confirmation of this reversal pattern.

This pattern is commonly used for analyzing shorter time frames in cryptocurrency trading.

Once again, let’s use Tesla stock as an example. The red candle opened above the previous day’s close but closed below the midpoint of the previous green candle. After the bearish dark cloud pattern emerged, the price broke through the trend line on the next day, resulting in a 10% drop.

3. The Evening Star

The evening star pattern consists of three candles: a large green candle, followed by a small-bodied candle with a gap, and finally, a large red candle. This pattern reflects the struggle between buyers and sellers and offers a reliable signal for potential trend reversals.

The long green candlestick confirms buying pressure, while the second candlestick gaps up, providing further evidence of residual buying pressure. However, the bullish trend slows significantly after the gap, and a small candlestick forms, indicating indecision and a possible reversal of the trend. The third long red candlestick confirms the reversal.

The third and last candlestick of the pattern is bearish, indicating that the bears have the upper hand, and prices start to decline. Evening stars are considered reliable markers of a continued downtrend in price movement.

Let’s use USD/YEN as an example for this candlestick pattern. The asset approached a recent high, but momentum slowed after a significant bearish candlestick formed, creating an evening star pattern. The market dropped a whopping 6% after the pattern.

4. The Shooting Star

The shooting star pattern occurs when a candlestick has a small body with a long upper shadow, resembling a shooting star falling from the sky. It suggests a potential reversal in an uptrend, indicating that the bulls have lost momentum and the bears might take over.

The accuracy of the shooting star pattern depends on factors such as market conditions, volume, and confirmation from other indicators. Traders use this pattern as a warning sign to consider selling or taking profits, but it is crucial to analyze it alongside other technical tools.

Using BNB as an example, the shooting star pattern can be observed when a bearish candlestick is formed with a long upper wick. The market was approaching a previous resistance area and moving further away from the support trend line. Therefore, after the pattern formed, there was a higher chance for the market to turn bearish, reverting back to the supporting trend line.

5. The Hanging Man

The Hanging Man pattern consists of a single candle with a short body and a long lower shadow, resembling a person hanging by their feet.

This pattern suggests that selling pressure has emerged, causing the price to close near or below its opening level. However, the accuracy of this pattern in predicting reversals depends on other factors such as volume, trend confirmation, and the overall market context.

The hanging man pattern can be seen in NQ when the asset reached a recent high. After the pattern emerged, a descending channel formed, leading the asset to continuously decline.

The Bottom Line

references for traders seeking to enhance their decision-making abilities. It is crucial, however, to analyze these patterns in conjunction with other technical tools and take into account the broader market context in order to make more precise predictions.

Merely relying on the interpretation of candlestick patterns alone is insufficient for consistently profitable trades. Therefore, we encourage you to subscribe to our blogs and utilize our indicators to gain a deeper understanding of market trends, enabling you to trade without being swayed by emotions.

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Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading involves risk, and it is important to conduct thorough research and seek professional guidance before making any investment decisions. Prospective investors are encouraged to perform their own due diligence or consult a financial advisor before making investment decisions.