Bearish Candlesticks Patterns

Bearish candlestick patterns help you predict downturns and offer valuable clues about the market sentiment, namely if it’ll likely shift from buying to selling. 

If you want to know how to spot opportunities to sell or short the market, it’s essential that you identify bearish patterns, their formation, and their meaning.

Read below to learn more about bearish candlestick patterns, and you’ll be equipped with the required knowledge to make informed trading decisions and gain a competitive edge in cryptocurrency trading.

Common Bearish Candlestick Patterns

1. The Bearish Engulfing 

The Engulfing Bearish candlestick pattern is a powerful reversal signal. 

The bearish engulfing is a two-candlestick pattern that occurs at the end of an uptrend. The first candle is a small bullish candle, followed by a large bearish candle that completely engulfs the body of the first candle. This indicates that the sellers have taken control of the market and that the bullish momentum has faded.

Cryptocurrency traders usually decide to enter a short position on the opening of the next candle, after confirming that it’s bearish. This can be done by placing a stop-loss above the high of the engulfing candle and setting a target at the nearest support level.

bearish englufing.png

2. The Evening Star

The Evening Star is a three-candlestick pattern that usually appears at the end of an uptrend. The first candle is bullish, followed by a small indecisive candle (a small-bodied candle), and then a large bearish candle. The third candle closes below the midpoint of the first candle, which confirms that a reversal has taken place. 

If you want to trade with the evening star pattern, you also need to find an uptrend on your chart. Look for a series of higher highs and higher lows, and use indicators like moving averages or trend lines to confirm the trend’s direction. Also, you can enter your trade when the price breaks below the low of the third candle; this is a strong signal that the sellers have taken control and that the price is likely to keep falling.

evening star.png

3. The Dark Cloud Cover

The Dark Cloud Cover is a two-candlestick pattern that forms after an uptrend. It starts with a bullish candle followed by a bearish candle that opens above the previous day's close but closes below its midpoint. This pattern suggests a weakening bullish trend and the possibility of a downward reversal.

When you spot this pattern, consider taking precautionary measures, like setting stop-loss orders or reducing your position size. Additionally, look for confirmation signals like overbought conditions on oscillators or trendline breaks to enhance the reliability of this pattern’s signals.

For example, you can look for divergence on an oscillator like RSI or MACD, or for a break below a support level or a trend line.

dark cloud cover.png

4. The Shooting Star

The Shooting Star is a single-candlestick pattern that looks like an inverted hammer. It occurs at the end of an uptrend and signals a potential reversal. The long upper shadow and small real body indicate that buyers tried to push prices higher but failed, resulting in a bearish outlook.

This pattern indicates that the buyers pushed the price up during the session, but the sellers came in and drove the price back down. 

For a successful trade with the shooting star, you should look for confirmation from the next candle, which should close below the body of the shooting star.

shooting star.png

5. The Bearish Harami

The word "harami" means "pregnant" in Japanese, and it got its name because this pattern resembles a pregnant woman with the first candle being the mother and the second candle being the baby (a large bullish candle is followed by a smaller bearish candle). The second candle must be completely within the range of the body of the first candle to make this pattern valid.

Traders often view it as a warning signal that a bullish trend may be coming to an end or at least experiencing a temporary pullback. 

For example, suppose Bitcoin has been on an upward trend, and a Bearish Harami pattern forms after a strong bullish candle. This might be a signal to be cautious and consider shorting the asset or taking profits.

bearish harami.png

6. Three Black Crows

The Three Black Crows is a bearish reversal pattern that consists of three consecutive long red (or black) candles with short or no wicks, each opening lower than the previous day's close. This pattern signifies a strong shift in sentiment from bullish to bearish and can be a powerful indicator of a potential downtrend.

Here’s what you should look for to correctly identify the Three Black Crows pattern:

  • three consecutive red (or black) candles
  • each candle should open lower than the previous day's close
  • minimal or no upper wicks, indicating strong selling pressure

The fact that three consecutive red candles appear with little to no upper wicks indicates a strong selling presence. This can be a compelling reason for traders to consider shorting the asset or waiting for further confirmation of the bearish trend.

three black crows.png

Final Thoughts

When using any candlestick pattern, remember that although they’re helpful for quickly predicting trends, it’s better to use them alongside other forms of technical analysis to confirm the overall trend.

The best way to learn to read candlestick patterns is to practice entering and exiting trades from the signals they give. You can develop your skills in a risk-free environment with the help of a free trial from Altrady, or if you feel confident enough to start trading, you can open a live account today; you’ll also get unlimited access to the free paper trading plan.