In trading, recognizing bearish reversal patterns is crucial for identifying potential trend changes and protecting profits. These patterns help traders spot shifts in market sentiment from bullish to bearish, allowing them to exit long positions or enter short trades at the right time.
This guide covers six powerful bearish reversal patterns that signal a potential market downturn:
- Shooting Star – A small body with a long upper wick, appearing after an uptrend.
- Bearish Engulfing – A large red candle completely engulfs the previous green candle, showing strong selling pressure.
- Evening Star – A three-candle pattern indicating a transition from bullish to bearish sentiment.
- Dark Cloud Cover – A bearish candle that opens above the previous green candle but closes below its midpoint.
- Tweezer Top – Two candles with equal highs, indicating strong resistance.
- Three Black Crows – Three consecutive strong red candles signaling a bearish reversal.
By the end of this article, you’ll understand how to identify, confirm, and trade these bearish reversal patterns effectively.
1. Shooting Star: A Warning Sign for Bulls
What is a Shooting Star?
The Shooting Star is a single-candle bearish reversal pattern that appears at the top of an uptrend. It has:
✔ A small real body near the low of the candle.
✔ A long upper wick (at least twice the size of the body), showing rejection of higher prices.
✔ Little or no lower wick, indicating that sellers gained control by the close.
Why Does It Form?
The pattern shows that buyers attempted to push the price higher, but strong selling pressure forced the price to close near its opening level.
How to Trade It?
- Confirmation: Look for a red candle after the Shooting Star to confirm the reversal.
- Entry: Enter a short position below the Shooting Star’s low.
- Stop-Loss: Above the Shooting Star’s high.
- Target: The next support level.
2. Bearish Engulfing: Strong Selling Pressure
What is a Bearish Engulfing Pattern?
The Bearish Engulfing is a two-candle reversal pattern that signals a shift from bullish to bearish sentiment. It consists of:
✔ A small green candle (Day 1) showing buying pressure.
✔ A large red candle (Day 2) that completely engulfs the previous green candle.
Why Does It Form?
It indicates that sellers have overwhelmed buyers, leading to a strong shift in momentum.
How to Trade It?
- Confirmation: High volume on the second candle strengthens the signal.
- Entry: Enter a short position at the close of the red candle.
- Stop-Loss: Above the red candle’s high.
- Target: The next support level.
3. Evening Star: A Three-Candle Bearish Reversal Pattern
What is an Evening Star?
The Evening Star is a three-candle pattern that appears at the top of an uptrend, signaling a shift to bearish momentum. It consists of:
✔ A large bullish candle (Day 1) continuing the uptrend.
✔ A small indecisive candle (Day 2), which could be a doji or small-bodied candle.
✔ A strong bearish candle (Day 3) closing below the midpoint of the first candle.
Why Does It Form?
The small second candle indicates buying exhaustion, and the strong third candle confirms the bearish reversal.
How to Trade It?
- Confirmation: The third bearish candle should close below the midpoint of the first bullish candle.
- Entry: Enter a short trade at the close of the third candle.
- Stop-Loss: Above the high of the second candle.
- Target: The next support level.
4. Dark Cloud Cover: A Sign of Bearish Control
What is a Dark Cloud Cover Pattern?
The Dark Cloud Cover is a two-candle bearish reversal pattern that appears at the end of an uptrend. It consists of:
✔ A strong bullish candle (Day 1).
✔ A bearish candle (Day 2) that opens above the previous close but closes below its midpoint.
Why Does It Form?
It indicates that buyers pushed the price higher, but sellers took control and forced a lower close, signaling a shift in sentiment.
How to Trade It?
- Confirmation: Volume increase on the second candle strengthens the signal.
- Entry: Enter a short trade below the second candle’s close.
- Stop-Loss: Above the second candle’s high.
- Target: The next support level.
5. Tweezer Top: A Double Rejection of Higher Prices
What is a Tweezer Top Pattern?
The Tweezer Top is a two-candle bearish reversal pattern that signals strong resistance at a particular price level. It consists of:
✔ Two candles with nearly equal highs.
✔ The first candle is bullish, and the second is bearish.
Why Does It Form?
The pattern indicates that buyers tried to push the price higher twice but failed both times, suggesting that sellers are now in control.
How to Trade It?
- Confirmation: Look for additional bearish signals (e.g., RSI divergence).
- Entry: Enter a short position after the second candle.
- Stop-Loss: Above the tweezer high.
- Target: The next support level.
6. Three Black Crows: A Strong Bearish Reversal
What is a Three Black Crows Pattern?
The Three Black Crows is a three-candle bearish reversal pattern that appears at the top of an uptrend. It consists of:
✔ Three consecutive strong red candles.
✔ Each candle opens within the previous candle’s body and closes near its low.
Why Does It Form?
The pattern shows that buyers are losing control, and sellers are aggressively pushing prices lower over three consecutive sessions.
How to Trade It?
- Confirmation: The pattern is stronger when combined with high volume.
- Entry: Enter a short trade at the close of the third candle.
- Stop-Loss: Above the first candle’s high.
- Target: The next support level.
Final Thoughts: Mastering Bearish Reversal Patterns
Understanding bearish reversal patterns is essential for traders who want to anticipate market downturns and make profitable trading decisions. However, for maximum accuracy, traders should:
✔ Use volume confirmation to validate the pattern.
✔ Combine with technical indicators (e.g., RSI, MACD) for extra confirmation.
✔ Identify key support and resistance levels before entering trades.
By mastering these six bearish reversal patterns, traders can effectively protect profits, exit long positions, and capitalize on bearish market opportunities.
