UK Accounting Glossary
The bearish engulfing pattern is a relatively simple candlestick charting pattern consisting of one white candle followed by a longer black candle — it is a bearish reversal pattern. The body of the white candle in a bearish engulfing pattern may be of any length. The body of the black candle in a bearish engulfing pattern completely covers or “engulfs” the body of the preceding. That is, the black candle in a bearish engulfing pattern opens higher than the white candle’s closing price and closes lower than the white candle’s opening price. In an ideal bearish engulfing pattern, the body of the black candle will also engulf the white candle’s shadows but it is not a requirement. The bearish engulfing pattern signals a negative reversal in sentiment regarding a stock, commodity, index, etc. If a stock is overbought or has been in an uptrend, technical analysts tend to view the bearish engulfing pattern as a fairly reliable bearish signal. Market technicians further tend believe the longer the black candle and the greater its coverage of the white candle, the stronger the reversal indicated by the bearish engulfing pattern.
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This glossary post was last updated: 4th February 2020.