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The Anatomy of a Good Bearish Engulfing Candlestick Pattern


There is no doubt that Japanese Candlesticks are the best and most accurate trading tools. They can be used to analyze any markets.

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Many of the professional traders and investors use nothing but candlesticks. They don’t even add Bollinger Bands to their charts. The reason is that they don’t need and trust anything else. Candlesticks gives them anything they want, to locate the best and most optimum entry and exit points.

In this short post, I am going to share one of the trade setups we took recently. This trade setup was only based on the pure candlestick signals and patterns and we didn’t even use Bollinger Bands. The reason is, there are so many professional traders among our LuckScout Millionaires Club members that are interested in pure candlestick signals only and don’t even like to have Bollinger Bands on their charts.

The Anatomy of a Good Bearish Engulfing Candlestick Pattern

Here I am sharing a trade setup that was formed on AUD/CAD daily chart and reported at LuckScout Millionaires Club just recently:

The 2017.04.06 daily candlestick has formed a relatively strong bearish body. This is not a short trade setup based on our transitional candlestick + Bollinger Bands trading system. But it is a short trade setup for those who merely follow the candlesticks’ patterns and signals and have no other indicators on their charts. I try to explain these kinds of candlesticks’ signals and patterns for those of you who are interested in pure candlestick signals.

So, this is how the 2017.04.06 candlestick is formed while having BB on the chart (below). As you see, there is no Bollinger Bands breakout, and so, no trade setup is formed according to our traditional candlestick + Bollinger Bands trading system:

Bearish Engulfing Pattern Formed on on AUD/CAD Daily Chart

Now, let’s remove Bollinger Bands and see how the pure candlestick signal looks like and why it is a short trade setup according to those who merely follow the candlesticks and have no BB and other indicators on the charts.

If you remove BB, you will see that the 2017.04.06 daily candlestick has formed a strong Bearish Engulfing Pattern which has engulfed the body of all of the previous 3 candlesticks and has broken and closed below the 1.01222 support level which is the low price of 2017.04.03 candlestick that two of the next candlesticks have closed above it.

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It means when the last closed daily candlestick formed, something changed in the market and bears got stronger and took and closed the price below the 1.01222 level. So bears have taken the control, and it is strongly possible that they take the price down at least for one or two more candlesticks:

Breaking Below the 1.01222 Support Level

The safest way to trade such a short trade setup is placing a sell pending order (sell stop) few pips below the low price of the 2017.04.06 daily candlestick that has formed the setup. The stop loss can be around this candlestick’s open price or a little above it.

The Results:

We expected this short trade setup to take the price down at least for a few candlesticks. The price went down for over 190 pips and four consecutive bearish candlesticks after the 2017.04.06 daily candlestick close and the Bearish Engulfing Candlestick Pattern that it formed:

190+ Pips down Move After the Short Trade Setup

Some candlestick signals enable us to predict the next price direction for a few or few next candlesticks. The above example is one of those candlestick signals. Some other candlestick signals on the longer time frames, are strong enough to make us hold our positions for several days, weeks and even years.

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4 thoughts on “The Anatomy of a Good Bearish Engulfing Candlestick Pattern
  1. Ben Aqiba Ben Aqiba says:

    Hi Chris,

    I am glad that you find some time for new article.We’re missing them.
    What is your opinion about setup formed 2017.03.21. from same chart ?

    Thank you

    • LuckScout LuckScout says:

      Hi Ben,

      The candlestick signal is not strong enough itself and has formed at the top of a strong bull market. Like the 2017.03.02 candlestick that is much stronger but didn’t work because the market was strongly bullish.

  2. great language (japans candles), and a great teacher; thank you for sharing your knowledge.

  3. Ssy Ssy says:

    This post is not short at all, just long enough to convey its message, so it’s the perfect length. Being short and concise is actually a plus, unless you think people like reading long and rambling articles that are repetitious and tedious as a result.

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