Candle formation Bearish engulfing and Shooting star

Bearish engulfing and Shooting Star: strong candle formations for trend reversal prediction

Candle formations are one of the key tools of technical analysis that allow traders to identify possible trend reversals in financial markets. Two of the most prominent formations that indicate a potential market decline are Bearish Engulfing and Shooting star. Both of these formations provide important signals for entering short positions and can help traders optimize their trading strategy.

Bearish engulfing: bearish reversal signal

Bearish engulfing is a two-wire formation that appears after a clearly defined bullish trend. This formation is a strong reversal signal that suggests that sellers have taken control of the market and prices may fall further.

Characteristics for Bearish engulfing

The first candle is bullish (green): This candle represents a continuing uptrend.

The second candle is bear (red): It opens above the closing price of the first candle and closes below its opening price, which means that the second candle completely engulfs the body of the first candle.

Big body of the second candle: The larger the body of the second candle, the stronger the reversal signal.

Higher volumes: If the second candle is accompanied by high trading volumes, the probability of a reversal is higher.

How to trade bearish engulfing?

Entering a short position: Traders can enter a short position immediately after the close of the second candle.

Stop loss: Place the stop loss above the upper shadow of the second candle.

Profit target: Set the profit target to the nearest support level.

Bearish engulfing is only valid if the market was previously in an uptrend and the formation does not occur during a sideways trend development.

Shooting star: one-shot bear signal

Shooting star is a single candle formation that appears at the end of a growth trend. The typical feature of this formation is a long upper wick and a small body. Shooting star signals that the bulls have been unable to sustain higher prices and sellers have started to gain the upper hand.

Characteristics of shooting star

Long top wick: The top wick should be at least twice as long as the body of the candle.

Small body: The body of the candle is small and located near the bottom of the price range.

Short or no bottom wick: The candle should have no or a very short bottom wick.

How to trade Shooting star?

Aggressive traders: They can enter a short position immediately after the candle closes. Stop loss is placed above the upper shadow and profit target at the nearest support level.

Conservative traders: They wait for confirmation with the next candle. If the market moves down, they enter a short position.

The difference between Shooting star and Inverted Hammer

Shooting star: Occurs at the end of an uptrend and signals a downward market reversal.

Inverted Hammer: Occurs at the end of a downtrend and signals a market reversal upwards.

Bearish engulfing and Shooting star formations are important tools for traders looking for market reversal signals. Bearish engulfing provides a clear two-wire signal that sellers have taken control, while Shooting star signals that the bulls have been unable to sustain higher prices and sellers have begun to dominate. Using these formations in conjunction with other technical indicators can greatly increase the likelihood of successful trades and help traders better navigate the financial markets.

Try trading Bearish engulfing, or Shooting Star

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