The red candle opens above the green candle’s close and closes below its open — fully engulfing the prior candle’s body. Sellers took complete control.
What is a Bearish Engulfing?
The Bearish Engulfing pattern is the mirror image of the Bullish Engulfing. The first candle is green (bullish) — the market is still rising. The second candle is a large red candle that opens above the green candle’s close and closes below its open, completely engulfing the body.
As with its bullish counterpart, the size of the engulfing candle is important. A red candle that only barely covers the green candle is a weaker signal than one that overwhelms it decisively.
What Does It Tell You?
Buyers were in control and pushing price up. Then in a single candle, sellers arrived in force, gapping the price up at the open before overwhelming every buyer and closing below the entire prior candle’s range. The bulls who bought into the rally are now trapped at a loss, and any longs entered on the prior green candle are immediately underwater.
This sudden shift in power is why the Bearish Engulfing is one of the most watched reversal signals — especially at a key resistance level or a market high.
How to Trade It
- ✓ Best at the top of a clear, extended uptrend — especially at resistance.
- ✓ The larger and more decisive the red candle, the stronger the signal.
- ✓ High volume confirms that the selling is institutional, not just noise.
- ✓ Enter short on the open of the third candle or on a minor bounce back to the engulfing candle’s midpoint.
- ✗ Avoid trading it in the middle of a range or after a very small green candle.
- ✗ Don’t force a short if there’s a major support level just below the pattern.
Stop loss: Place just above the high of the engulfing red candle. If sellers are truly taking control, price should not break back above that point.