What is a bearish engulfing pattern and how to work?

What is a bearish engulfing pattern and how to work?  

A bearish engulfing candlestick pattern is a bearish reversal candlestick pattern which is a specific formation in candlestick charts that often signals a potential down trend. It consists of two candles (1st candle is Green and the second candle is Red) a smaller bullish green candle followed by a larger bearish red candle that completely covers or "engulfs" the previous body candle.  

Characteristics of the bearish engulfing candle.  

1. The first candle should be bullish (Green candle).  

2. The second candle should be a bearish candle (Red candle).  

3. The second candle's body completely covers the first candle's body candle.  

4. The pattern appears during an upward trend and near the resistance zone.  

How to Identify a Bearish Engulfing Candlestick Pattern?  

1. Look for an ongoing uptrend market.  

2. Spot a small bullish candle near the resistance level.  

3. Check, if the next candle is bearish and larger red.  

4. Confirm that the second candle's body candle fully covers the first body candle  

Kindly note that : The size difference between the two candles matters - the bigger the second red candle, the stronger the signal for the downtrend market.  

Important key factor of  Market Conditions.  

1. Trading volume should increase in red during the second candle closing.  

2. The pattern is more reliable when reaches at resistance zone.  

3. Market sentiment should show signs of buyer exhaustion.  

4. Other technical indicators show overbought conditions.  

5. Verify market trends using multiple timeframes like 5 and 15Min.  

How to work with a bearish engulfing pattern?  

1. Wait for the second candle to close with a strong red candle.  

2. Enter the trade at the opening of the next third candle.  

3. Place a stop loss order above of the bearish engulfing candlestick pattern.  

What should be the Stop Loss?   

1. You have to place stop-loss orders above the bearish engulfing pattern's high point.  

2. Consider the overall market sentiment bullish or bearish market.  

3. Don't risk more than 1-2% of your total trading capital.  

What should be the risk management for trade?  

1. Keep your position size reasonable (1-2% of your trading capital)  

2. Use a risk-reward ratio of at least 1:2 for all trades.  

3. Consider market volatility when placing a stop losses order.  

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