The Bearish Engulfing reversal pattern consists of two Japanese candlesticks of opposing colors. It forms at the end of an uptrend or near a resistance area.

The first candle has a white real body as expected after all, to confirm the buyers’ intention to pull prices even higher during the uptrend.

Of course, the small size of the real body may raise an eyebrow to the experienced technical analyst. The second candle is long and has a black real body to indicate that demand and supply have just shifted roles. Supply is greater than demand or in simple terms, the sellers outweigh the buyers as shown by the long black body.

The important thing to notice here is that the body of the first candle is contained within the body of the second candlestick. The shadows are of little or no valuable importance for this pattern.

Now, let’s take a look at the specifications of the Bearish Engulfing pattern:

  1. There must be an undisputed uptrend.
  2. The first candle of the pattern is small and has a white real body.
  3. The second candle is long and has a black real body.
  4. Last, the body of the long black candle contains the previous body, the white real body.

Great! What about any potential sell setup?

Well, I would place a sell order right below the low price of the pattern. This way the price will confirm my forecast and expectation, but it will also boost my confidence. Additionally, I would place a protective stop loss just above the high price of the pattern just in case the market goes against me.

Remember nothing is 100% and the markets are no exception. Stay tuned for more.