The most common method of technical analysis of markets is charts based on Japanese candlesticks. The “Bearish Engulfing Pattern” system uses a candlestick model of bearish absorption to determine the trend reversal and find the entry points into the trade. Bearish absorption is the opposite of bull’s-eye absorption. It appears at the end of the uptrend when the red body of the candle completely absorbs the green body of the previous candle. It shows that the sellers are suppressing the buyers. The “Bearish Engulfing Pattern” system works best on daily charts and is suitable for analyzing the movement of any currency pair and various financial instruments, such as futures, options, stocks. Of course, this will require a broker to trade shares. “Engulfing Pattern” is the main reversal signal. The reversal candlestick opens above the closing of the previous day and closes below the opening of the previous day.
Thus, the red candle completely absorbs the previous green candle of the day, while the tails of the candles are not taken into account. Such a candlestick can be considered a reversal, if before that the prices were in the trend, even if it was short, and approached the resistance level.
Additional pattern confirmations:
– A big body absorbs a small body.
– If the absorbent candle absorbs a few previous candles.
– If the absorbing candle absorbs the wicks of the previous day.
– If “Engulfing Pattern” is formed after a doji candle.
On this EUR/JPY chart we see two bearish absorption models that formed on the resistance line. The first case occurred on November 8, after the dodgy candlestick indicated a change in investor sentiment, followed by a bearish candlestick coverage the next day, confirming the change in trend.
The sales order was set at the opening of the next candle at 114.191. Take Profit was placed at the level of day support in the amount of 300 points. Stop-loss was placed just above the previous dog by 130 points. The second deal took place when a bearish absorption of a candle failed to break through the daily resistance at 114.73. The position was opened on the next candle on November 23 at 113.531. Take Profit was set on the same support line, and the stop-loss was placed 140 points higher than the previous candle.
The trading system “Bearish Engulfing Pattern” is perfect for those traders who can not spend much time trading or combines the main work with trading.
To simplify the work with the system, set the indicator of determining the main candlestick models on the chart.