Over the course of many, many conversations with traders around the world, I have noticed one very common theme. Traders love to invest in “winners”. Meaning, they want to see the market rise. The average trader/investor typically does well when the markets are on their way up. The traders who have the ability to understand bearish candlesticks tend to profit in both rising as well as falling markets.
There are a few ideas that are critical to understand about bearish candlestick patterns. First, for a candle pattern to be a bearish candlestick pattern, there must have been an uptrend immediately preceding the bearish pattern. Being able to identify that reversal signal will not only allow you to exit a long position, but also may be able to enter a short position. One of the more common bearish candlestick patterns is the Bearish Engulfing Pattern. This is a two candle pattern where selling pressure overwhelms any buying force as represented here by a small white candle that is “engulfed” by a long black candle. Also remember that for this to be a bearish reversal signal, there must have also been a prior uptrend to this pattern.
Knowing when to exit a trade can be equally if not more important than when to enter. Since many traders take on initial long positions, knowing when to exit those (hopefully with a profit) can be tricky. Having at least one reason to exit the long trade is essential in taking out the emotion of trading. Candles enable you to find a price action, related reason to make that critical decision. But understanding bearish candles can also assist you in profiting as the market pulls back or drops. Think about your knowledge of bearish candles as an entire new set of tools in your trader’s toolbox!
The other concept to realize is that understanding bearish candles is not difficult. In fact, for most bullish candles, there is a bearish counterpart. So if you are already at least slightly familiar with some of the popular bullish candles, then you are already ahead of the game and will likely be able to understand bearish candles quickly and therefore be able to capitalize on this knowledge. So take the first steps in understanding bearish candles.
To continue understanding bearish candles and other candlestick patterns, visit us at www.candlecharts.com. We look forward to hearing your success stories!