Bearish Engulfing
A large bearish candle that completely wraps the prior bullish candle's body — supply takes control — a reversal warning at the top of an uptrend.
The Bearish Engulfing is the mirror of the Bullish Engulfing. The first candle is bullish (continuing the uptrend). The second opens above the first candle's close and closes below its open — the red body swallows the green body.
The gap up opens with bullish momentum; sellers absorb it entirely and drive price below where buyers started. This shift in control is a meaningful warning that the uptrend may be exhausted. Most reliable at resistance, after a sustained rally, with above-average volume on the engulfing candle.
On the desk
At a major resistance level after a ten-week rally, a large red candle opens above the prior close and closes far below the prior open. Traders reduce longs and look for puts, with stops above the engulfing candle's high.