Emini Futures | Top 3 Bearish Candlestick Patterns
June 12, 2012 at 9:21 PM (QQQ)(DIA)(SPY)(KONG)(FB)
Top 3 Bearish Candlestick Patterns
Bearish Engulfing Pattern: Look familiar? Great! Now you're starting to understand the sublime simplicity of reading Japanese Candlesticks. Yes there are many patterns and signals (over 100), however, simply learning a few very basic ones will add an entirely new dimension to your trading. Not only are the basic ones the most easy to spot, they are also the ones you can expect to show up on your Emini Chart most often.
In the context of an uptrend, the bullish momentum shows signs of weakening. The first candle of the pattern has a small range which indicates that buying pressure may have dried up. The second candle of the pattern opens higher than the close of the previous candle and closes lower than the low of the previous candle. This indicates that sellers have now taken control of the market. High volume on the engulfing candle increases the chances that a reversal has occurred. If the engulfing body engulfs both the body and the wicks of the first candle, the reversal has a higher probability of success. If the engulfing body engulfs more than one previous candle, this demonstrates great power in the reversal and is a signal that should never be ignored. If you find yourself in a long position when this pattern appears, exit immediately and either reverse your position or move to the sidelines and wait.
Bearish Harami Pattern: Once again you are looking at a polar opposite candlestick pattern. The only real difference between this pattern and the Bullish Harami is that this pattern will appear in the context of an uptrend.
Once a third candle closes below the close of the second candle, the pattern is now called the Bearish Three Inside Down. In reality, the third candle simply serves to confirm the Bearish Harami. If you see additional small range candles print inside the body of the first candle, this is further confirmation that a sizable reversal is brewing. Keep in mind, unless the pattern appears after an extended uptrend, it may be nothing more than a continuation signal. Context is king in candlestick charting.
Bearish Shooting Star: This pattern consists of 1 candle with a small real body, and a large upper wick. The smaller the body and the larger the wick, the better the probability that a reversal is at hand. Buyers have run out of steam and Sellers now own the chart. If it looks lke nothing more than a upside down hammer, you're catching on.
By learning to spot the shooting star candlestick, you'll have a very valuable tool to assist in spotting early signs of a reversal. This candle will alert you to the end of an uptrend long before trend-following tools like a MACD. It also assists you in placing your stop if you are using the signal to enter a short position. If you are in a long position when this signal appears, consider exiting the market or bringing your stop to just below the low of the Shooting Star.
Bonus Bearish Pattern
Bearish Dark Cloud Cover: I have saved the best for last. This is my single favorite publicly known bearish signal. The Bearish Dark Cloud Cover Pattern is a two-candlestick pattern which signals a reversal in the context of an uptrend. The first candle of the pattern is a wide range bullish candle. The second candle opens above the high of the first candle and closes well inside the prior candles body
With just a little imagination you can understand why it is called a dark cloud. The lower the close of the second candle the better the chance for a reversal. This reversal is perhaps less powerful than a bearish engulfing pattern but it does give the opportunity to enter the market earlier and with less potential risk on the trade.
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