Chart Analysis · Lesson 19 · Beginner
Bearish Candlestick Patterns: the Catalog
You recognize the most important bearish candlestick patterns from their profiles and know for each how reliable it is and when to ignore it.
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The catalog mirrored to the upside
This is the recognition catalog for bearish candlestick patterns. The context rule is the mirror image of the bullish one: a bearish reversal is only a signal after an uptrend. The principle behind it is covered in ct-candlestick-kontext.
As in the bullish catalog, each pattern comes with a short text on what the profile does not show: the honest reliability and the cases in which you ignore the pattern.
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The Shooting Star has a small body at the bottom and a long upper wick that shows a rejected high. It only counts after a rise. The same shape after a sell-off is called an Inverted Hammer and is bullish, the context decides everything.
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The Hanging Man looks like a Hammer but appears in an uptrend and is bearish. The long lower wick looks bullish but reveals that price sold off deep. Never trade it without a confirming red follow-up candle, in isolation it is unreliable.
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The Gravestone Doji is the bearish doji variant at the top: open and close are at the bottom, the long upper wick shows a clearly rejected high. Without elevated volume and without an uptrend before it, it stays just an indecision candle. More on this in ct-candle-patterns-neutral.
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The Bearish Engulfing is one of the more reliable two-candle patterns: the red body completely engulfs the green prior day. The larger the engulfing body, the stronger the signal. It is still not a guarantee, failure rates remain.
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Dark Cloud Cover is the bearish counterpart to the Piercing Line and the weaker version of the Engulfing. The red candle must dip more than halfway into the green prior body. If it does not manage that, the pattern is invalid.
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The Evening Star is the bearish three-candle pattern and therefore more reliable than a single candle: strong green body, small indecision body at the top, then a strong red body. The small middle body and a convincing third candle make the signal.
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Three Black Crows are three strong red candles in a row and a powerful reversal sign at the top. As with the soldiers: by the time you spot them the sell-off has often already run far and is short-term oversold. A late short carries a poor reward-to-risk ratio here.
Test yourself
A candle like a Hammer, but it appears at the end of a strong uptrend. What is it?
- A Hanging Man, a bearish warning
- A Hammer, so a buy signal
Small body, long upper wick, after a rise. Which pattern?
- Shooting Star
- Inverted Hammer
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The key points at a glance
- A bearish reversal only counts in an uptrend, in a downtrend the same shape is not a signal.
- Shooting Star and Inverted Hammer have the same shape, only the trend context tells them apart.
- The Hanging Man appears in an uptrend and warns of a turn to the downside, despite its bullish-looking long lower wick.
Deep dive
Why a bearish reversal so often fizzles out
A single bearish pattern is a probability hint, not a forecast. A 5-minute candle only sums up 5 minutes of sentiment. Large players turn the market over hours, not in one candle.
- Close filter: the pattern only counts once the next candle closes below the signal.
- Location filter: worth far more at resistance or the upper Bollinger band.
- Without both filters you are trading noise and collecting false signals.
Bearish Engulfing versus Dark Cloud Cover
In a Bearish Engulfing the red body completely swallows the previous green body, a full takeover by the sellers. Dark Cloud Cover is weaker: if the red candle dips less than 50 percent into the prior body, the pattern is invalid.
- The bigger the red body and the higher the volume, the more serious it is.
- An Evening Star beats any single candle: a small middle body is ideal.
- Three Black Crows often come too late, the sell-off has already run.
The most common mistake with Shooting Star and Hanging Man
The Shooting Star and Inverted Hammer are the same shape, and so are the Hanging Man and Hammer. Only the preceding trend decides the reading. Morris uses a 10-period average as a filter: without an uptrend before it, the Shooting Star is just a candle with a long wick.
- The Hanging Man looks bullish but warns of a move down.
- Never trade it in isolation, always wait for the confirmation candle.
- On the demo exchange you see how often a star fails without confirmation.
Sources: TradingFace: Technical and Graphical Analysis, Nison, Morris
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