Bearish Engulfing Pattern

Bearish engulfing patterns signify that a bear market (a downward trend) may be about to engulf the market, which is simple enough, right? Describing the pattern itself is a bit harder. Analysts look at charts to spot trends and patterns.

A "candlestick" is a type of chart that shows the low, high, open and close price of a share for a specific period. For this example, we're looking at the period of one day. The bearish engulfing pattern is a small white candlestick, followed by a much larger black one. The white one means the security had a higher close price price than open. The black one, though, closed with a lower price than it opened at. This low close price may indicate that the share lost momentum during the measured period.

For example, if you're looking at the candlestick chart, and you notice the share closed low, it might not be a huge issue if it's just a day, or if it's a small loss during the day. But if it happens a few times, that black candlestick can become a black cloud over your investment future.