Home
Overview
Foundation
Basics
Intermediate
Advanced
Professional
What's New
Stock Thoughts
Motivation
Stock Jokes
Sitemap

[?] Subscribe To
This Site

XML RSS
Add to Google
Add to My Yahoo!
Add to My MSN
Add to Newsgator
Subscribe with Bloglines

Bearish Reversal Japanese
Candlestick Chart Pattern

Part of japanese candlestick chart education is learning how to spot patterns that show us possible reversals in a stock. This article focuses on helping you spot dangers before it happens...

As usual, there are both sides you need to learn. The bull side and the bear side. Why? Because the market goes up and goes down.These bearish reversal are the exact opposite of the bullish reversal japanese candlestick chart patterns

All you need to do is just flip it in your mind. I have included the bearish reversal japanese candlestick chart patterns here with their explanations. This is because I know it might be difficult for those just starting out to imagine it in their minds.

Once you learn these patterns, there are two ways you can use them to your advantage. Firstly, they help you spot danger before it happens. Secondly, you can use these patterns as possible areas of entry for a short position.

Shooting Star

shooting star 1

A shooting star is the opposite of a hammer. What happens here is, the stock opens near the low. The bulls then push the price up. However, the bulls could not maintain their dominance. The stock fails to hold on to its gain and closes at its low.

The shooting star often appears at the top of an uptrend. Sometimes you may even see it appearing on bearish reversal chart patterns. When you see a bearish reversal japanese candlestick chart pattern appearing on a bearish reversal chart pattern, it is a strong signal of possible reversal.

It is normal to see people get excited in the markets when it is about to top. People just keep buying and buying thinking it will go up. At this time, you might also notice that the PE of the stock has become unreasonably high.

At a market top, everyone who wants to buy stocks have probably committed all their money into stocks. So, who is left to buy? This is when you will usually see the shooting star appear.

When you see a shooting star, it signifies that the uptrend may slow down. A possible reversal may occur. So take extra precaution when you do see a shooting star. Who knows, it might save you 100,000 USD.

Bearish Engulfing Pattern

A bearish engulfing pattern is made out of two candlestick bars. You will notice that the second bar completely engulfes the first bar. The first bar will be an up bar. The next day, the stock gaps up. If you are holding to that stock, you will be very happy.

Bearish Engulfing 1

Everybody thinks that the stock is going to go up.

However, instead of going up, the stock drops and close below the low of the first day. The bulls have lost control. The bears are now in control and have eliminated the bears. This causes a shock. Those who have bought the stock may be considering of getting rid of it. Thus, the stock may be ready to go down.

There are some factors that enhance the signal of this candlestick pattern. Firstly, observe the gap up on the engulfing day. The further the gap up is from the close of the first day, the more likely it is that a strong reversal will occur.

Secondly, a very small body or a doji appearing on the first day may give us a warning that the upward momentum may be slowing down. If there is a large red body on the second day which engulfes a small body or doji, the signal is stronger. The prior trend is running out of momentum.

Thirdly, if the large red body engulfes more than one small body, the probability of a reversal is much higher. Fourthly, volume can also show us clues. Heavy volume on the engulfing day increases the odds that the reversal is genuine.

When dealing with japanese candlestick chart patterns, it is good to wait for a confirmation the next day. The confirmation could be another red bar, a gap down or a lower close on the next day.

Bearish Harami

Steve Nison, who is widely known as the father of candlesticks, explains that Harami means 'pregnant' in Japanese. When you look at the picture of the bearish harami, doesn't it look like a pregnant mother carrying her baby?

bearish harami 1

What happens here is the first day's candle completely engulfes the second day's candle. The first day is a promising bullish bar. The stock has gained a lot and people are happy. They expect and think that the stock may go up again the next day.

The second day brings a great surprise to many. Instead of continuing to go up, the stock opened below yesterday's close. This is known as a gap down.

Imagine you were holding the stock. Now you know how it feels to experience a gap down. At the end of the day, what would you be thinking? I'm sure you might think "Maybe I should sell some of it tommorow. Things doesn't seem to look that good. Better exit some of my position"

If you are thinking of that, there are perhaps thousands out there who are thinking along the same lines. That is why when you see this patterns, it gives us a warning that the bears may start to take control. There is a possibility that the stock might move down from there.

Again, there are some factors which will enhance this japanese candlestick chart pattern's signal. Firstly, the longer the red and green candle bars, the more powerful the reversal will be.

Secondly, the lower the red candle closes into the body of the green candle, the more powerful the signal will be. That's because the more the stock closes lower, the more money the bulls are now losing.

Once again, it is always good to see some confirmation on the following day. This can either be another red bar, a gap down or a lower close.

Bearish Kicking

This japanese candlestick chart pattern is considered to be the strongest candlestick signal. When we go through the pyschology and mindset of the people who bought the stock, you would understand why.

bearish kicking 1

On the first day, a large green candle forms. On the second day, the stock gaps down and continues to go down forming a large red candle. The two candle bars do not have shadows. When you see this pattern forming in an uptrend, it is a strong sign that the market may be heading down.

Let us go through the pyschology and mindset of the stock owner. The stock has been going up and everybody is happy. The bulls are confident and think that the stock will go up and up. The owner of the stock is probably making a huge amount of profits by now.

The next day, instead of going up, the stock gaps down and falls all the way down. The huge gain yesterday is completely erased at the opening bell. Not only is the profit gone, the stock owner probably finds himself at a loss.

Everybody is shocked. Every minute they start to lose more and more of their money. So, what would they do? Well, panic sets in and to keep their losses from growing, many will sell the stock. Usually, a wave of selling will make the stock drop further in price.

Just like the other japanese candlestick chart patterns, there are some factors that enhance the signal of this pattern. Firstly, the longer the candles are, the more powerful the reversal. Secondly, the further the gap down is from the first day's close, the more powerful the signal is.

This pattern is a very reliable pattern. As with most japanese candlestick chart patterns, it is good to see some confirmation on the following day. This can etiher be another red bar, a gap down or a lower close.

Evening Star/Evening Doji Star

The first day is a long green candle. On the second day, the stock gaps up. However, the stock does not go up much. The trading range of the second day is small. On the third day, the stock gaps down and forms a long red candle. The long red candle should close at least halfway into the body of the first day's green candle.

evening star 1

The evening doji star is quite similar to the evening star pattern. The difference is, on the second day of the evening doji star, a doji is formed and not a small range candle. That is why it is called an evening doji star pattern.

These patterns gives a top reversal signal. Just like its name, the evening star tells us of a black future. It shows us that there is a possibility that the stock will go down.

There are a few factors that we should look at which will enhance the signal of this pattern. Firstly, the longer the first and third candle bar is, the more forceful the reversal will be.

Secondly, on the second day, the more indecision there is, the higher the possibility a reversal will occur. Thus, a doji appearing on the second day will give us a better signal than a small body appearing. Thirdly, the more the third day's candle close into the body of the first day, the greater the strength of the reversal will be.

These two japanese candlestick chart patterns have a very high reliability. Again, as with most candlestick pattern, it is good to see some confirmation on the following day. This can either be another red bar, a gap down or a lower close.




Summary

These are some examples of bearish reversal japanese candlestick chart patterns. Of course there are many more. Try to learn as many as possible. They may be beneficial to you. Once you master these japanese candlestick chart patterns, you will be able to spot possible reversals in a stock.

Return from Japanese Candlestick Chart Patterns to Candlestick Menu
Return to Intermediate Page
Return to Home Page



footer for japanese candlestick chart page