In the stock market, the more information you have the better an investor you can become. As a compelling alternative to simple line or bar graph charts, candlestick charts can provide you with additional insights. With some practice, you can begin to recognize emerging stock patterns, which is very valuable in finding the tops and bottoms of pricing trends. Continuation patterns can confirm or deny market trends, allowing you to see if should buy, sell, or hold your position.
With many analysts predicting the potential drawback in the market next year due to economic indicators, a bear market may be on the horizon. With that said, utilizing candlestick chart patterns can help you make the most of a bear market by identifying price entry or exit points.
Common bearish candlestick chart patterns
There are different charts patterns, depending on whether the market is bullish or bearish. For bullish markets, you will often see the engulfing pattern, the harami, and the harami cross. For bearish markets, the engulfing pattern, the evening star, the harami, and the harami cross are more common.
In a bearish market, the engulfing pattern develops an uptrend. You will see a long red real body engulfing a small green real body. In a bullish market, you will see the opposite pattern, and the green body will be longer than the red body, engulfing it.
You can easily identify the evening star in a bearish market because the candle pattern opens underneath the previous day’s small real body. The real body may be red or green. The evening star pattern closes deep into the real body of the candle from two days prior. This often occurs when investors are losing confidence in the issue, and this will be confirmed if the next day is another down session.
The harami in a bearish market is also easy to recognize. With this candlestick pattern, it will show a small red real body that is entirely inside the previous day’s real body. This is when you will want to watch closely. A harami in the bearish market often signals that a current uptrend is ending, particularly if the volume is not very heavy. Those who study the different candlestick charts will also see that the harami pattern is the first two days of the three inside pattern.
In a bearish market, the harami pattern will be a mirror image of the bearish harami. You will see a downtrend happening, and the small green real body will be inside a large red body from the prior trading day. This signals to the chart reader that the trend is ending, and the previous trend is going to conclude. To confirm this, you will see a candlestick closing higher on the third day.
The last pattern to spot is the harami cross. In a bearish market, you will see a harami pattern, but instead of having a small real body happening on the next trading session, you will see a doji. The doji will be within the range of the previous session’s real body. Doji’s form when a stock’s opening and closing price are virtually equal. Like the regular harami, you will see the trend starting, but the market makes a decision at some point during the day and volume flat lines. You will then see the pattern closing at the same price that it opened at, showing that the trend was reversed. In a bullish market, you will again see the harami cross starting out with the basic harami form. The bullish harami cross is a mirror image of the bearish harami cross, so you can again see that a trend has been turned around.
The key to utilizing candlestick patterns to benefit your portfolio holdings is through practice. The more you read the charts, the more accurately you can detect potential reversals, thus providing you with an optimal point to sell or buy. In a bearish market, candlestick charts may prove to be a powerful friend to your portfolio.