Bearish candlesticks come in many different forms on candlestick charts. There are also bullish candlesticks. Bearish candles show that the price of a stock is going down. They are typically red or black on stock charts. Bullish candles show that the price of a stock is going up. They are typically green or white on stock charts.
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Bearish Candlestick Meaning
Bearish candlesticks make up part of the foundation of all stock charts. It forms when the bears try to push the price down. The close price is lower than the opening price. They are typically either red, black, or orange on a chart. Bearish candlesticks are one of two different candlesticks that form on stock charts: bullish and bearish candlesticks.
Bearish candlesticks tell you when selling power is coming in. The markets are a tug of war between the bulls and the bears when stock trading. One side is always going to win. Some days, the Bulls win. Some days, the Bears win. Each candlestick tells a unique story.
When the market or a stock is bearish, the price goes down. Short sellers and put options buyers are riding those prices down.
They come in many different forms, patterns, and sizes. Their uniqueness and combinations hint at what may happen in the future. As a result, that’s why it’s so important to decipher their meaning.
Each candlestick shows the price movement for the day—the day’s opening, closing, high, and low. In addition, the color of the candlestick tells you if the opening or closing price is higher.
Basics
Bearish candlestick patterns form over some time. These patterns give you insight into the future movement of a stock or market. But, of course, there will always be a continuation or reversal of a pattern or trend.
Paying attention to the patterns keeps you informed about how to buy, whether it’s going along with a stock or buying calls. As well as shorting or buying puts.
A head and shoulders pattern, also known as an F you pattern, is a bearish reversal pattern. You get a left shoulder, head, right shoulder, and neckline. The neckline is supported. As a result, if the stock breaks that support, it’s moving into a downtrend. You always want to wait for a reversal confirmation before buying or shorting. You don’t want to get caught in a fake out. Patterns are always forming on stock charts. That’s why it’s important that you can find them.
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How Do You Read a Bearish Candle?
Bearish candlesticks have a lower closing price. The real body is the filled part of the candlestick. The shorter the real body is, the more indecision the stock is in. The lines coming out of the top and bottom of the candlesticks are wicks (top) or tails (bottom). They are also referred to as shadows. The top wick is the high of the day. The bottom shadow or tail is the low of the day.
They show you the selling pressure coming in. When a bearish candle forms, the stock price goes down, causing the closing price to be lower than the opening price.
Bearish Candlestick Trading Strategy
- Traders take a short position when the price breaks below the low of the bearish candlestick
- They use a candlestick close above the high as a stop level
Bearish Candlestick Pattern Examples
Day Trading Setups
When day trade, you buy and sell a stock multiple times daily. Day trading requires you to be fast and precise. If you’re not, you could lose on a trade.
The intraday charts and technical indicators must buy and sell signals and move much faster. So whether you’re trading penny stocks or the larger cap stocks, you need to be able to spot patterns quickly.
When momentum trading, you’re either going long or short. Long means bullish, and short means bearish. There isn’t a right or wrong strategy; it’s a matter of preference. More restrictions come with being a short trader, such as brokers finding short locates. LightSpeed, SpeedTrader, and Centerpoint are solid brokers for bearish-biased day traders.
Momentum traders seek bearish candlestick pattern setups to shorten the reversals to support areas. So, they sell high near resistance levels, then buy low to cover their positions and keep the difference.
Swing Trading Setups
Swing trading strategies are different. When swing trading, hold the stock at least overnight. Swing trades typically last 3-6 days upward. The daily chart is the best to use when making a swing trade.
In the example above of AAPL, you’ll see several bullish daily candles that moved up to previous resistance levels. It looks like a bull pennant was forming for a possible breakout, but it failed. When the price fails the pennant, take a short position and use a candle close above the pennant as a stop.
Best Bearish Candlestick Patterns
- Hanging man – single bearish reversal candlestick
- Shooting star – single bearish reversal candlestick
- Gravestone doji – single candlestick with a small lower body and longer upper wick
- Bear flag – bearish candles form a flag pole, then bullish candles form a consolidation
- Falling three methods – looks like a bear flag with fewer candles
- Rising wedge – trendlines form an uptrend then reversal happens when the price fails the apex
- Bear pennant – looks like a bear flag but forms a pennant formation
- Descending triangle – lower highs form a sloping trendline with previous lows forming the base
- Double top – when the price fails to break a previous top, it forms a double top
- Head and shoulders – This pattern is bearish when the right shoulder fails to break the left shoulder
Bullish Reversals
The picture above shows a daily chart of $MSFT. The highlighted area shows three bearish candlesticks in a row—a three-black-crows pattern. Then, a bullish candlestick happened, creating a coequal bottom. This is a tweezer bottom pattern that is a bullish reversal.
Bearish and bullish patterns make up all stock charts. That’s why looking at the larger patterns when these single candlesticks form is important. One candlestick turns into two and three candlestick patterns, forming larger patterns overall.
These three bearish candlesticks occurred at the base of a large, overall falling wedge pattern. Then, the tweezers occurred at the base of the wedge, which ended up turning into a rising wedge.
Final Thoughts
Since the trade requires a longer hold, wait to see the patterns forming on a larger scale. Again, bearish candlesticks will tell whether to go long and buy call options or short and buy put options.
Frequently Asked Questions
A bearish hammer candlestick looks like a regular hammer, but it goes down instead of the price going up. It has a small candle body and a long lower wick. Typically, it's either red or black on stock charts. This is known commonly as an inverted hammer candlestick.
A bearish reversal means a stock may show signs of going into an uptrend and reversing from a current downtrend. Signs of a bearish reversal may be a hammer or doji candlestick found at critical support levels. It often completes a morning star pattern to confirm the start of an uptrend.
If a trader is in a long position and a bearish candlestick forms, it may be a sell signal to exit their position. Bearish traders take a short position when the price is near resistance levels and then cover their positions as the price falls to support levels.
