Low Times Ahead
In order to understand a candlestick signal like the bearish engulfing pattern, you’re going to have to back up a little and educate yourself about the origination of the candlestick charts themselves. Initially, they were devised by Japanese rice traders who wanted to be able to make better predictions about whether prices were headed in the right direction or not. The body, or bar, of the candlestick is meant to communicate the day’s opening and closing prices, while the lines, or shadows, emerging from each end communicate the range or prices that were reached during the day’s trading..
Once you’ve become more familiar with reading candlestick charts, you’ll start to be able to notice that certain trends are usually preceded by certain patterns of candlesticks, and this will get you started with interpreting the day’s charts to predict what will happen the next day. The bearish engulfing pattern is usually an indication that the previous trend, usually an uptrend, is slowing or perhaps coming to a close. .
In order to spot this chart pattern, you’re going to have to pay attention to price movements over the course of at least two days. The bearish engulfing pattern is made up of a small white candlestick that has short shadows or wicks coming out of the top and/or bottom. This candlestick will be followed by a large black or red candlestick which engulfs most of the entire body of the smaller white one.