Let’s have a look at candlestick top reversal patterns. I will discuss bearish patterns with the engulfing pattern, dark cloud cover, harami, evening star, abandoned baby, hanging man and shooting star pattern and more.
Before looking at the top reversal patterns we have to define the rules for a top reversal to be a valid pattern.
• A top reversal is only possible AFTER an uptrend.
• Most patterns need a confirmation.
• A confirmation must appear one up to three candles after the pattern.
• This confirmation is at least a closing price lower than the previous closing price and preferably a big black candle, high volume with the new down move, a falling window, or breaking support.
• A reversal pattern during price consolidation must be considered a continuation pattern.
• For best results, you must combine candlestick patterns with Western technical analysis.
• An unconfirmed pattern has no further meaning.
An engulfing bearish pattern in an uptrend is a small white body, not a doji, followed and enclosed by a bigger black body. Though not necessary, it is better when the black body also encloses the short shadows of the white candle. An exceptional occurrence at the end of an uptrend is a black body followed by a bigger white body; this is called a last engulfing pattern.
A dark cloud cover in an uptrend is a bigger white body that is followed by a black body with a higher opening price than the white body; however, the black candle closes below the midpoint of the white body. Confirmation is required.
A bearish counterattack is a white candle in an uptrend, followed by a black candle, where closing prices of both candles are at the same price level. Confirmation is a must.
A bearish harami in an uptrend is a black or preferably a white body, followed by a small white or black candle that is completely covered by the first candle body. A top reversal signal after confirmation. White black and white white combinations are the most common.
A bearish harami cross pattern in an uptrend is a black or preferably a white body followed by a doji that is completely covered by the first candle body. A bearish harami cross pattern needs confirmation.
An evening star is a bigger white body, followed by one or more small black or white bodies with a rising window above the closing price of the first white body. The black candle that follows ideally lays 50 or more within the first white body and has a falling window with the previous candle body.
An evening doji start is a bigger white body, followed by one or more doji’s with a rising window above the closing price of the first white body. The black candle that follows ideally lays 50 or more within the first white body and has a falling window with the previous doji. This is a stronger reversal pattern than the evening star.
A bearish abandoned baby pattern is an evening star with a small body or doji star with a window between the doji and the white and black candle, resulting in an island reversal. The island can have more candles and more than one doji.
A hanging man is a small white or black body close to the high price. It has a long lower shadow, with a minimum size of twice the height of the body. There is a very small shadow or no shadow at the top. A dragonfly doji, a doji with open and close price at the level of the high price, is a specific version of the hanging man pattern. Confirmation is required.
A bearish shooting star is a small white or preferably a small black body, near the low price. It has a long shadow above, minimum twice the size of the body. It has a very small shadow or no shadow below. There is a gap between the bodies of the bearish shooting star and the previous candle.
A top reversal only after confirmation. A bearish gravestone doji is a bearish shooting star where the opening, closing, and low prices are all about the same.
Three black crows are three black candlesticks with each subsequent bar making lower closing prices, close to the low of the bar. Opening prices of candles two and three are preferably within the body of the previous candles. Many times, there will be a small reaction before the new downtrend is resumed.
This is the end of my overview of candlestick top reversal patterns. Next article we will have a look at candlestick bottom reversal patterns.
Author Resource:
Want to learn more about candle top reversal patterns? You can find technical analysis articles for free at my website: http://stocata.org/ . Sylvain Vervoort is a trader and the author of a new book “Capturing Profit with Technical Analysis” and a regular contributor to Stocks & Commodities magazine
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