Bearish Engulfing

The Bearish Engulfing is a candlestick patterns indicator used in Skyrexio Strategy Builder for pattern recognition and reversal/continuation signals.

Introduction

The Bearish Engulfing is a bearish reversal candlestick pattern that signals potential SHORT opportunities or LONG position exits. This two-candle pattern occurs when a large bearish candle completely engulfs the previous smaller bullish candle, indicating strong selling pressure overwhelming buying pressure.

How Bearish Engulfing Works

Bearish Engulfing is a two-candle bearish reversal pattern with specific characteristics:

• Complete engulfment - The bearish candle's body completely contains the previous bullish candle's body • Opening gap up - The bearish candle opens above the previous candle's high • Closing below - The bearish candle closes below the previous candle's low • Volume confirmation - Higher volume on the engulfing candle strengthens the signal • Context matters - Most effective at resistance levels or after uptrends

Pattern Psychology: The pattern shows bulls initially pushing price higher (gap up), but bears overwhelm them completely, closing below the entire previous candle. This demonstrates a clear shift in market sentiment from bullish to bearish.

Key Characteristics

Attribute	Details
Category	Candlestick Patterns
Type	Bearish Reversal Signal
Primary Use	SHORT entries, LONG exits
Timeframe	All timeframes supported (1m to 1M)
Confirmation	Volume, resistance levels, trend context

Strategy Applications

🔴 SHORT STRATEGY (Primary Use)

Bearish Engulfing is primarily a SHORT signal - enter short positions when the pattern appears.

Base Entry Order (SHORT)

Base Order Condition: Bearish Engulfing Pattern Detected
First Condition: Bearish Engulfing
Timeframe: 1H

Additional Confirmation:
First Condition: Volume
Timeframe: 1H  
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Additional Entry Orders (SHORT)

Additional Entry 1: Pattern confirmation with momentum
First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 60

OR

Additional Entry 2: Breakdown below support
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H

Take Profit Orders (SHORT)

Rule 1: Exit condition - Target reached at support level
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H

OR

Rule 2: Exit condition - Oversold bounce warning
First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 25

OR

Rule 3: Exit condition - Bullish reversal pattern detected
First Condition: Bullish Engulfing
Timeframe: 1H

Stop Loss Orders (SHORT)

Rule 1: Stop loss - Pattern invalidated (price above engulfing high)
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H

OR

Rule 2: Stop loss - Volume surge breaks bearish momentum
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Rule 3: Stop loss - Bullish momentum confirmed
First Condition: MACD Line
Timeframe: 1H
Operator: Cross Above
Second Condition: MACD Signal Line
Timeframe: 1H

🟢 LONG STRATEGY (Secondary Use)

Bearish Engulfing can be used in LONG strategies as an exit signal or contra-trend bounce entry in oversold conditions.

Counter-Trend Risk: Using Bearish Engulfing for LONG entries is high-risk and should only be considered in extreme oversold conditions with very tight risk management.

Base Entry Order (LONG) - Contra-trend bounce

Base Order Condition: Bearish Engulfing in oversold market
First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 25

AND

First Condition: Bearish Engulfing
Timeframe: 1H

Additional Entry Orders (LONG) - Not recommended

Additional entries not recommended for LONG strategy using Bearish Engulfing. Use other bullish indicators like:

• Bullish Engulfing

• Hammer

• Morning Star

• Bullish divergence indicators

Take Profit Orders (LONG) - Exit existing positions

Rule 1: Exit condition - Bearish Engulfing signals trend reversal
First Condition: Bearish Engulfing
Timeframe: 1H

OR

Rule 2: Exit condition - Resistance level reached
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H

OR

Rule 3: Exit condition - Overbought momentum exhaustion
First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 78

Stop Loss Orders (LONG) - Protect existing positions

Rule 1: Stop loss - Bearish Engulfing confirms downtrend
First Condition: Bearish Engulfing
Timeframe: 1H

OR

Rule 2: Stop loss - Support breakdown confirmed
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H

OR

Rule 3: Stop loss - Volume confirms breakdown
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Advanced Strategy Combinations

Multi-Timeframe Bearish Engulfing (SHORT)

Setup

Higher Timeframe Confirmation:

• Daily: Bearish Engulfing + RSI > 60

• 4H: Trend weakening (EMA(21) flattening)

• 1H: Bearish Engulfing execution + Volume confirmation

Execution

Resistance Level Rejection (SHORT)

Setup Process:

1. Price approaches key resistance level

2. Bearish Engulfing forms at resistance

3. Volume increases on engulfing candle

4. RSI shows momentum divergence

Execution:

• Base Order: Bearish Engulfing at resistance

• Additional: Price fails to break resistance again

• Take Profit: Support levels, oversold bounce

• Stop Loss: Break above resistance with volume

Risk Management Guidelines

Position Sizing

Strategy Type	Position Size	Conditions
SHORT Strategy	Standard	Pattern appears at resistance
LONG Strategy	Reduced (25-50%)	Counter-trend plays only
High Volume	Increase confidence	Can use larger size
Low Volume	Reduce size	Wait for confirmation

Pattern Reliability Factors

High Reliability

✅ Appears at established resistance levels ✅ High volume on engulfing candle ✅ Follows extended uptrend ✅ Confirmed by momentum indicators

Low Reliability

Best Practices

For SHORT Strategies

1. Wait for resistance - Best results when pattern forms at key levels

2. Volume confirmation - Ensure high volume on engulfing candle

3. Trend context - Most effective after uptrends or at resistance

4. Quick execution - Enter on pattern completion, don't wait

For LONG Strategies

1. Extreme oversold only - Only consider in deeply oversold conditions

2. Counter-trend risk - Use smaller position sizes

3. Quick profits - Take profits fast on any bounce

4. Tight stops - Use very tight stop losses

Common Mistakes to Avoid

• Wrong direction - Don't go LONG on Bearish Engulfing without extreme oversold conditions

• No context - Ignoring support/resistance levels and trend direction

• Volume ignored - Trading pattern without volume confirmation

• Late entry - Entering after pattern has already played out

Market Conditions Analysis

Market Type	SHORT Strategy Effectiveness	LONG Strategy Effectiveness
Uptrend	🟢 High (reversal signal)	🔴 Very Low (against trend)
Downtrend	🟡 Medium (continuation)	🔴 Low (counter-trend)
Ranging	🟢 High (at resistance)	🟡 Medium (at support only)
High Volatility	🟢 High (clear signals)	🔴 Low (whipsaws)
Low Volume	🔴 Low (wait for confirmation)	🔴 Very Low (avoid)

Related Patterns

Pattern	Relationship	Link
Bullish Engulfing	Opposite signal	Bullish Engulfing
Dark Cloud Cover	Similar bearish signal	Dark Cloud Cover
Evening Star	Three-candle bearish	Evening Star
Hanging Man	Single-candle bearish	Hanging Man

Conclusion

Bearish Engulfing is primarily a SHORT signal indicating potential downward price movement. While it can be used in LONG strategies as an exit signal or extreme counter-trend entry, its primary value lies in identifying SHORT opportunities and LONG position exits.

Key Takeaways

• PRIMARY USE: SHORT entries at resistance levels

• SECONDARY USE: LONG exits when holding positions

• TERTIARY USE: Counter-trend LONG entries (high risk, oversold only)

• ALWAYS: Confirm with Volume and respect market context

Success with Bearish Engulfing requires understanding its bearish nature and using it appropriately within the context of your overall trading strategy. Never fight the pattern's natural direction without compelling oversold conditions and proper risk management.

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