Japanese Candlestick Patterns Screen: Bearish Engulfing Pattern

Japanese Candlestick Patterns Screen: Bearish Engulfing Pattern

On December 30, 2009, In Japanese Candlestick Patterns, by Steve Warshaw

#adp02Bearish Engulfing Patterns are #5 in my list of 15 Japanese Candlestick Pattern Screens

Introduction

Engulfing patterns are some of the most significant and reliable Japanese Candlestick Patterns. The signify an imminent change in the near term trend, and can be traded reliably when found near appropriate levels of support or resistance. The beauty of engulfing patterns is their easy of identification, and the corresponding market psychology (discussed below) that causes their formation.

There are two types of engulfing pattern, the Bullish Engulfing Pattern which will be discussed in another post, and the Bearish Engulfing Pattern which is analyzed here.

Bearish Engulfing Patterns

A Bearish Engulfing Pattern will appear at the end of a substantial uptrend. They are most reliable when price reaches a critical over head resistance area such as a trend line, or fibonacci retracement level. The signal should be verified using an indicator such as the Stochastic indicator, which will confirm the overbought status of the market being analyzed.

Formation
The bearing engulfing pattern is a two day pattern characterized by the following:

The inbound trend should be bullish
A small real bodied white candlestick , with short shadows appears on day 1
On day 2, the stock gaps up
By the end of day 2, the market trades lower than the open of day 1

There are a few characteristics that improve the reliability of engulfing patterns:

If Day 1 is a doji, or harami
Stochastics, or %R indicators are overbought
Volume decreasing as the bullish candles form into day 1
Bearish divergence in OBV, or other momentum based indicator

For more information on the Bearish Engulfing Pattern, check out The Candlestick Forum

Bearish Engulfing Pattern Stock Screen

The following screen utilizes Stock Fetcher 2.0

set{body_bottom,min(open,close)}
set{body_top,max(open,close)}
set{lshadowsize, body_bottom – low}
set{tshadowsize, high – body_top}
set{tshadowsize2, tshadowsize * 2}
set{body_size, body_top minus body_bottom}
show stocks where slope of MA(30) is above .1
and body_size 1 day ago is 25% less than CMA(body_size,30)
and open 1 day ago is below close 1 day ago
and body_bottom is below body_bottom 1 day ago
and body_top is above body_top 1 day ago
and close is below open

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