Japanese Candlestick Patterns – Bearish Patterns

Japanese Candlestick Patterns were used in Japan to analyze rice contract prices in the 17th century. They help determine who is winning the forex market: Bulls (buyers-traders who expect the market to go up and start buying currency pairs) or Bears (sellers-traders who expect the market to go down and start selling currency pairs).

Bearish Patterns:
• Hanging Man: Characteristics of the Bearish Hanging Man mimic those of the Bullish Hammer. However, the Hanging Man is a top reversal pattern, while the Hammer is a bottom reversal pattern. The Hanging Man occurs when there is a major sell-off close to the opening of the market but buyers push the price so that it is near or equal to the opening price when the market closes. This pattern indicates that the control of a pair’s price movement will shift from bulls to bears and that the pair’s demand is falling.
• Evening Star: This is a three-candle, top reversal pattern that is usually formed after the price of a currency pair increases. It indicates a reversal in the uptrend of a pair. Its features include:
• A large white body followed by a small body.
• The small body is gapped above the large white body and the third black body engulfs 50% or more of the first body.

• Evening Doji Star: This is also a three-candle, top reversal pattern that is usually formed after a price increase in a currency pair. Its features include:
• A large white body followed by a black candle, which engulfs 50% or more of the first white body.
• A Doji is gapped between the two bodies and above the first white body.

• Bearish Engulfing: This is a two-candle, top reversal pattern. It accompanies an increase in the value of a pair and indicates a bearish future trend. Its features include:
• A prior white body wrapped around by the latter black body after an increase in the price of a currency pair.
• The black body must completely eclipse the white body but the upper or lower shadow need not to be covered completely.

• Trend Lines: Trend Lines are based on the continuity of a pair’s price movement in one direction over a period of time. If there is an uptrend in the market, the trend line will have a positive slope, while a downtrend will lead to the trend line having a negative slope. The uptrend line acts as a support in case of price declines and the downtrend line acts as a resistance in case of a price rise.

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