The bearish candlestick patterns are a good place to start for day traders who want to take advantage of the downward trend in price. These patterns represent a possible change in sentiment and can be used as a signal to enter short positions.
Read on to learn more about the 8 best bearish candlestick patterns for day trading.
What Are Bearish Candlesticks Patterns Saying?
When a bearish candlestick pattern forms, it tells the trader that there may be a reversal in price.
The individual candlesticks in these patterns give information about the direction of the price and where it could go next. In order to have enough evidence about what is going on, you have to have several examples of the same pattern in the same area of price on your chart.
This is why traders will use these patterns to enter into short trades, taking advantage of the downward price movement that has just begun or is about to begin.
Here are some of the most common bearish candlestick patterns:
The Evening Star
Not to be confused with the morning star, a bullish pattern, the evening star is a bearish reversal pattern that can appear at any time of day.
The three candles in this pattern form over three consecutive sessions and must be present to make it valid. The first session has a white body, with the second having an empty (no filled) body and opens above the high of the previous bar. The third session has a lower black body than the first and second day’s opening price.
The Shooting Star
Keeping with the star theme, the shooting star is a bearish pattern that forms during an uptrend.
This pattern starts with a white body candle and has a higher high than the previous bar but closes at or below its open.
The next day opens lower than yesterday’s low and should also have a black (or filled) candle.
When you have these two days in a row, this pattern is complete.
The Dark Cloud Cover
The bearish dark cloud cover is formed when prices rally for an extended time and seem to want to continue going up. An extremely long white candle opens and begins increasing in price, but the next session starts with a huge selloff that takes out the entire high range of the last bar.
This black candlestick is an indication that buyers have been exhausted and sellers are starting to move in, so new lows will probably be made.
The Piercing Line
In a downtrending market, this bearish pattern can offer a clue about how far the price might fall. This pattern starts with a long black candle with the body located at the upper end of the trading range. A second long black candle opens lower than yesterday’s low but does not close as low as it opened (or even higher, where price might form a bullish engulfing pattern).
The next day opens above yesterday’s open and closes below that session’s open, forming a line that pierces the first candle’s body.
The tweezer top is formed when the market seems to want to continue its downtrend but instead makes a quick rally. The highest high in this pattern is made on the second day, and the result is almost like a symmetrical triangle, where prices move higher quickly before rolling over again.
If you’re familiar with the bullish engulfing pattern, then bearish engulfing will be easy to spot.
The first candle in this pattern is a long white one that opens higher than the previous high and closes above it. Then there is a black session that opens lower than yesterday’s low but closes even lower than that, showing sellers are in control.
The next day opens higher than yesterday’s open and closes below the previous day’s close, showing that buyers were unable to maintain the uptrend.
When each session’s high and low range in a pattern becomes smaller, this is known as shrinking. The bears are taking control and pushing prices lower with each session until, eventually, price breaks below the lows of at least three (or more) sessions.
The hanging man is a bearish candlestick patterns reversal pattern that forms after an uptrend. This candle has a long shadow and opens above the previous bar’s high, signifying indecision in the market.
The next session opens even higher, but the selling throughout this second day causes the price to end close to its open, forming a line that hangs below the first candle.
The hanging man is not as bearish as some of these other patterns like the shooting star or dark cloud cover, but it does show that buyers couldn’t hold the market together, and soon, the price will most likely fall.
Bullish Or Bearish?
When you combine knowledge about bullish and bearish candlestick patterns with a solid trading method and rules for day trading, you can learn to read any market.
When you know what to look for, candlesticks can be used as a tool that will never lie to you or let you down.
It doesn’t matter if the price is dropping like a rock or rallying with strength; the analysis of candlestick patterns can help you find opportunities for profitable trades.
Candlesticks are a great way to take advantage of information that escapes many traders.
Using price action analysis is one of the most effective ways to trade, and when you combine it with knowledge about bullish and bearish candles, you can become an excellent trader. On average, candlestick patterns are over 70% accurate at forecasting price movements.
Every trader wants to know how to use technical analysis to be accurate in their signals and win more trades. Candlesticks are one of the most effective tools in your arsenal so start using them today.