Technical Analysis -- Episode 20: Bearish engulfing

Source: Tiger Trade app

The Bearish Engulfing is a technical pattern that occurs when the current bullish candlestick (upward candle) is completely engulfed or "eaten" by the preceding bearish candlestick (downward candle).

The Bearish Engulfing may suggest a shift in market sentiment towards bearishness and indicate a potential price decline.

The characteristics of Bearish Engulfing are as follows:

1. Uptrend: Bearish Engulfing typically appears during an uptrend, indicating a potential signal for price reversal.

2. First Candlestick: The first candlestick is a larger body representing bullish strength.

3. Second Candlestick: The second candlestick is a larger body that fully engulfs or covers the body of the first candlestick.

4. Reversal Signal: The appearance of Bearish Engulfing is considered a signal of price reversal, suggesting that bullish momentum may be waning, and bearish momentum may be strengthening.

The Bearish Engulfing pattern is often interpreted in technical analysis as a shift in market sentiment, where bullish strength may be overshadowed by bearish pressure, implying a possible price decline.

Let's use an example to better understand the Bearish Engulfing pattern:

Apple Inc. (AAPL) - A clear Bearish Engulfing pattern appeared in March 2018. When this pattern emerged, it indicated an increase in bearish forces and a weakening of bullish forces, suggesting that the stock price of Apple Inc. might face significant downward pressure in the short term, leading to a subsequent decline in its stock price.

Source：Tiger trade app

Please note that the above example is for illustrative purposes only and does not constitute investment advice for the future. When making any investment decisions, carefully analyze the current situation of the stock and consider other technical and fundamental factors for comprehensive evaluation.

In addition, in the Bearish Engulfing pattern, investors should take note of the following:

1. Trend analysis: The Bearish Engulfing pattern may signal a trend reversal. Investors should use other technical indicators and trend confirmation tools to assess market direction. If Bearish Engulfing occurs in a clear downtrend, it may indicate a potential trend reversal.

2. Volume analysis: Observing the trading volume when the Bearish Engulfing pattern forms is also essential. Higher volume accompanying the Bearish Engulfing could indicate a change in market sentiment and active participation of funds, which may increase the reliability of the pattern.

3. Confirmation with other technical indicators: In addition to the Bearish Engulfing pattern, it is important to combine confirmation from other technical indicators. For example, investors can observe other support and resistance levels, moving averages, and other indicators to further confirm market trends.

4. Risk management: Whether it's the Bearish Engulfing pattern or any other pattern, risk management is always a priority for investors. Setting reasonable stop-loss points, controlling risks, and making appropriate trading decisions based on one's investment strategy are crucial.

In conclusion, the Bearish Engulfing pattern is a reference factor for investors in the stock market, but it should not be the sole basis for making investment decisions. By combining other technical indicators, market sentiment, and risk management, investors can make more comprehensive judgments about market trends and make appropriate investment decisions.