The Bearish Engulfing is the mirror image of the Bullish Engulfing. It forms at the top of an uptrend when a large bearish (red) candle completely engulfs the body of the previous bullish (green) candle. It signals that sellers have overwhelmed buyers in a single session โ a powerful warning that the uptrend may be reversing.
Pattern Diagram
Identification Checklist
- Day 1: Bullish (green) candle in an uptrend
- Day 2: Red candle opens above Day 1 close and closes below Day 1 open
- Day 2 body completely covers Day 1 body
- Appears after a clear uptrend (minimum 3โ5 bullish candles before)
Trading the Bearish Engulfing
Short Entry Strategy:
Entry: Short on the close of the engulfing candle OR open of next candle
Stop Loss: Above the high of the engulfing candle
Target: Previous support level or 1:2 risk-reward
Strongest Signals:
โ Appears at a well-known resistance level (52-week high, ATH)
โ High volume on the red engulfing candle
โ RSI is overbought (above 70) when pattern forms
โ MACD histogram turning red simultaneously
Entry: Short on the close of the engulfing candle OR open of next candle
Stop Loss: Above the high of the engulfing candle
Target: Previous support level or 1:2 risk-reward
Strongest Signals:
โ Appears at a well-known resistance level (52-week high, ATH)
โ High volume on the red engulfing candle
โ RSI is overbought (above 70) when pattern forms
โ MACD histogram turning red simultaneously
For equity traders who cannot short NSE stocks directly, a Bearish Engulfing at resistance is a strong exit signal for existing long positions โ even if you do not want to take a short trade.
