Hi guys! I hope you are doing well in this crazy markets.
After learning about the Bullish Patterns, today I want to talk about different bearish signals of the market that we have to be cautious of.
Bearish patterns are usually formed after an uptrend and are a signal of market's resistance. These patterns are showing pessimism in the market making traders to sell their long position and open short position to take advantage of the future downtrends.
#1 Hanging Man
Is the bearish equivalent of the Hammer. It indicates that have been a significant sell off during the day but the bulls were able to put up the price again. The large sell off it is a sign that the bulls are loosing control of the market and this could face a reversal. Something important to take into account is that you will see many Hanging man in your charts but the important ones are those that form on resistance levels.
#2 Shooting Star
It has the same shape of the Inverted Hammer, but it is formed in an uptrend. It has a small body and a long upper shadow (2 or 3 times the length of the body). Usually, when the market opens, the buyers pushed the price higher but the bear's pressure is so strong that the closing price is lower than the opening. This pattern it is showing us the market's rejection to higher prices.
#3 Bearish Engulfing
Occurs at the end of an uptrend. the first candle has a small green body that is engulfed by a subsequent red candle. It means a peak or slowdown of price movement and is a sign of an impending market down turn. The lower the second candle goes, the more significant the trend is likely to be.
#4 Evening Star
It is a three candle pattern formed by a short candle between a long green candle and a large red candle. It indicates the reversal of an uptrend and is particularly strong when the third candle erases completely the gains of the first candle.
#5 Dark Cloud Cover
this is a two candle pattern in which the red candle opens above the previous green one and closes below the middle point. It is a signal that the bears have taken control of the market pushing the price lover. The larger the red candle is, the more significant the drop will be.
Finally guys, please always remember this principle:
Trade the market, not the pattern.
I hope you've enjoyed the content and don't forget to have a look to the Top 5 Bullish Patterns
See you next time 👍