CANDLESTICK PATTERNS : BEARISH PATTERNS

1. ABANDONED BABY : A long white day is followed by a Doji that gaps in the direction of the trend. Then a black day occurs gapping in the opposite direction with no overlapping shadows. In an uptrend or within a bounce of a downtrend, the market gaps up but does not continue it's upward movement .

Instead enough bears step in to bring supply and demand back into equilibrium and the stock churns in place. This isn't necessarily bearish, but it's certainly less bullish. The pattern is confirmed by the next day's gap down and drop.

Pattern: reversal - Reliability: high

2. ADVANCE BLOCK : Three white days occur. Each successive day opens within the body of the previous day and closes above the previous day. The bodies of the candles get progressively smaller with the upper shadows of day 2 and 3 getting progressively longer.

Each successive candle is smaller and closes further from its intraday high. This isn't necessarily extremely bearish, but it's certainly less bullish. It hints that the bounce is losing steam because each attempt to rally intraday fails by a greater degree.

Pattern: reversal - Reliability: moderate

3. BELT HOLD : A black day occurs with no upper shadow and a close near the day's low.

The Belt Hold occurs fairly often and is not very reliable. The fact that the day's opening price holds as the high of the day and the stock trends down all day leans bearish, but one really needs to note the overall trend and receive confirmation with an additional down day.

Pattern: reversal - Reliability: low

4. BREAKAWAY : A long white day is followed by a white day that gaps above the first day. The next two days continue in the same direction with higher consecutive closes. The final day is a long black day that closes in the gap between the first and second days.

In an uptrend or within a bounce of a downtrend, the stock exhausts itself with a gap up, but although the upward movement continues, it slows noticeably. The long black day suggests a possible reversal in the making to at least fill the gap. Declining volume on the three middle days with a pickup in volume on the black day serve as confirmation.

Pattern: reversal - Reliability: moderate

5. DARK CLOUD COVER : A long white day is followed by a black day which gaps above the high of the white candle and then closes below the midpoint of the first day's body.

In an uptrend or within a bounce of a downtrend, the stock gaps up and immediately encounters sellers who push the stock back down. This simply signifies the possibility of a reversal that is more reliable if the gap up occurs at resistance and the black day is accompanied by a surge in volume.

Pattern: reversal - Reliability: high

6. DELIBERATION : A long white day is followed by a second long white day that closes higher than the first. The third white day gaps above the second and becomes a white spinning top or Doji.

The first two white days say “full speed ahead” as the stock appears strong and in a solid uptrend. But the gap up and failure to rally much suggests that the strength may be waning. This isn't necessarily bearish, but it's certainly less bullish, so stops are raised, or profits taken on long positions.

Pattern: reversal - Reliability: moderate

7. DOJI STAR : A long white day is followed by a Doji that gaps in the direction of the trend. The shadows of the Doji should not be long.

In an uptrend or within a bounce of a downtrend, the market gaps up but does not continue its upward movement. Instead enough bears step up to bring supply and demand back into equilibrium and the stock churns in place. The halt of the uptrend signifies the possibility of a reversal, so confirmation is needed with a weak third day (preferably with volume behind it).

Pattern: reversal - Reliability: moderate

8. DOWNSIDE GAP THREE METHODS : A long black day is followed by a second long black day that gaps in the direction of the trend. The third day is white and fills the gap between the first two days.

In a downtrend a gap simply gets filled. As long as the black candles have higher volume than the white, the one white profit taking day for the shorts shouldn't be a big concern. The downtrend should continue if indeed the stock is as weak as it appears.

Pattern: continuation - Reliability: moderate

9. DOWNSIDE TASUKI GAP : A long black day is followed by a second long black day that gaps in the direction of the trend. The third day is white and opens within the body of the second day and closes within the gap.

In a downtrend a gap is partially filled. This is simply a profit taking scenario for the shorts and a sucker entry for dumb longs. We have a weak stock in a downtrend that bounces. As long as the white day is on lighter volume, the bears will most likely retake control soon after.

Pattern: continuation - Reliability: moderate

10. ENGULFING : A white day is then completely “engulfed” by a large black day which gaps above the white day's high and closes below its low.

In an uptrend or within a bounce of a downtrend, the gap up may be the blow out that causes the shorts to throw in the towel and cover. Meanwhile the smart money is selling and getting short and the selling activity is so intense, the stock closes below the previous day's low. The bullish Engulfing pattern is very common…literally dozens occur every day and many are just incidental. Watch volume for confirmation.

Pattern: reversal - Reliability: moderate

11. EVENING DOJI STAR : A long white day is followed by a Doji that gaps in the direction of the trend. The third day is a black day that closes in the bottom half of the white candle.

In an uptrend or within a bounce of a downtrend, the market gaps up but does not continue its upward movement. Instead enough bears step up to bring supply and demand back into equilibrium and the stock churns in place. This is the bearish Doji Star formation. A subsequent follow through gap down that closes below the midpoint of the white day completes the pattern and confirms the reversal.

Pattern: reversal  - Reliability: high

12. EVENING STAR : A long white day is followed by a small body that gaps in the direction of the trend. The third day is a black day that closes in the bottom half of the white candle.

In an uptrend or within a bounce of a downtrend, the market gaps up but does not continue its upward movement. Instead enough bears step up to bring supply and demand back into equilibrium so a small body forms. A subsequent follow through gap down that closes below the midpoint of the white day completes the pattern and confirms the reversal.

Pattern: reversal - Reliability: high

13. FALLING THREE METHODS : A long black day in a downtrend is followed by three relatively small candles that move opposite the overall trend but stay within the range of the first day. The fifth day is a long black day that closes below the close of the first day and continues the downtrend.

In a downtrend, a long black day is followed by a brief bounce (preferably on lightish volume). The fifth day simply continues the trend. The brief bounce is nothing more than a few days off for the bears.

Pattern: continuation -  Reliability: high

14. HARAMI : A long white day is followed by a black day that gaps down and is completely engulfed by the real body of the first day.

In an uptrend or within a bounce of a downtrend a long white day occurs. The next day's gap down comes as a surprise to bulls who thought they were sitting on a great position the previous day. Reliability of the bearish Harami is low, so a weak following day is needed for confirmation.

Pattern: reversal - Reliability: low

15. HARAMI CROSS : A long white day is followed by a Doji that gaps down and is completely engulfed by the real body of the first day.

In an uptrend or within a bounce of a downtrend a long white day occurs. The next day's gap down comes as a surprise to bulls who thought they were sitting on a great position the previous day. Reliability of the bearish Harami Cross is better than that of the bearish Harami, but it is still on the low side. A weak following day is needed for confirmation.

Pattern: reversal - Reliability: moderate

16. IDENTICAL THREE CROWS : Three black days occur with each day opening where the previous day closed.

In an uptrend three successive days open at the previous day's close and close down on the day. This pattern is more severe than the Three Black Crows pattern and thus has a higher reliability as a reversal pattern.

Pattern: reversal - Reliability: high

17. IN NECK : A long black day is followed by a long white day that gaps down at the open and closes at the same price as the black day.

The In Neck pattern is a less severe relative of the On Neck pattern because it rallies further intraday. A gap down is seen as a buying and short covering opportunity, but failure to rally the stock up into the previous day's range indicates the buying most likely will be brief and the downtrend shall resume.

Pattern: continuation - Reliability: moderate

18. KICKING : A White Marubuzo (opens at low and closes at high) is followed by a Black Marubuzo (opens at high and closes at low) that gaps down.

A big black candle that opens at its high and closes at the day's low is bearish regardless of the overall trend. Volume confirmation on the black day solidifies the patter as is a follow up weak day.

Pattern: reversal - Reliability: high

19. MEETING LINES : A long white day is followed by a long black day that gaps up at the open but then drops to close at the same price as the white day's close.

In an uptrend or within a bounce of a downtrend a long white day occurs. The next day gaps up at the open and most likely causes the remaining shorts to throw in the towel and cover while the smart money sells and gets short; the stock then drops. The author considers the identical close of the two candles to be incidental and not extremely important. The fact remains the shorts were washed out and now profit taking will cause a pullback.

Pattern: reversal - Reliability: moderate

20. SEPARATING LINES : A white day is followed by a black day that has the same opening price.

In a downtrend, the price gaps down and bounces intraday with a white candle. This proves to be simple profit taking by shorts and bottom fishing by dumb longs when the downtrend continues with the next day's gap down and low close.

Pattern: continuation - Reliability: low

21. SIDE BY SIDE WHITE LINES : A black day is followed by a white day that gaps in the direction of the trend. The third candle is also white and is almost identical to the previous day.

In a downtrend a black day is followed by two white days that are gapped below the first day. The lack of follow through on the second white day suggests the bears are still somewhat in control, and unless the bulls can fill that overhead gap with some volume behind the move, the downtrend will remain intact.

Pattern: continuation - Reliability: moderate

22. THREE BLACK CROWS : Three long black days occur with each successive open being within the body of the previous day and each successive close being below the previous day's and near the day's low.

In an uptrend or within a bounce of a downtrend, the three long black candles speak for themselves. If volume accompanies the move, the reliability of the pattern increases significantly.

Pattern: reversal - Reliability: high

23. THREE INSIDE DOWN : A bearish Harami pattern is followed by a black day whose close is lower than the second day.

In an uptrend or within a bounce of a downtrend, a bearish Harami forms. By itself this pattern has moderate reliability as a reversal pattern, but when followed by a weak day (preferably with a pick up in volume) the overall pattern becomes much more reliable.

Pattern: reversal -  Reliability: high

24. THREE LINE STRIKE : Three long black days with consecutively lower closes is followed by a fourth day that gaps in the direction of the trend and closes above the open of the first day.

In a downtrend, the Three Line Strike pattern has low reliability. The large white day can really scare the shorts and many contrarians will site this as bearish. If indeed the downtrend is strong, the one white day should not ruin the pattern. Hence, if the next day is down, the downtrend should continue.

Pattern: continuation - Reliability: low

25. THREE OUTSIDE DOWN : A bearish Engulfing pattern is followed by a black day whose close is lower than the second day.

In an uptrend or within a bounce of a downtrend, a bearish Engulfing pattern forms. By itself this pattern has moderate reliability as a reversal indicator, but when the it is followed by another black day (preferably on strong volume), the overall pattern becomes much more reliable.

Pattern: reversal - Reliability: high

26. THRUSTING : A black day is followed by a white day which gaps in the direction of the trend and closes below the midpoint of the black day.

The Thrusting pattern is a weaker version of the bearish On Neck and bearish In Neck continuation patterns. The bulls start to assert themselves as evidenced by the rally into the previous day's trading range, but by closing in the lower half of that range, the overall pattern is still bearish.

Pattern: continuation - Reliability: low

27. TRI STAR : A Doji occurs on three consecutive trading days with the second gapping up and the third gapping back down.

In an uptrend or within a bounce of a downtrend, a battle begins. The bulls start to back off while the bears step up. Dojis indicate an even battle between the bulls and bears. The formation of three Dojis within a uptrend hints that the bulls may be starting to reassert themselves. A black day with volume is needed to confirm the reversal.

Pattern: reversal - Reliability: moderate

28. TWO CROWS : A long white day is followed by a black candle which gaps up in the direction of the trend. The final day opens within the body of the small black day, drops to fill the gap and closes within the body of the first day.

In an uptrend or within a bounce of a downtrend, a gap up which fails to close above its open hints at a weakening trend. The second day that gaps and then falls to fill the downside gap confirms the reversal of the trend.

Pattern: reversal - Reliability: moderate

29. UPSIDE GAP TWO CROWS : A long white day is followed by a black candle which gaps in the direction of the trend. The final day engulfs the small black day and closes within the gap of the first two days.

In an uptrend or within a bounce of a downtrend, successive gaps up which close down to force a black candle to form suggests the bulls are weaken. They are not able to rally the stock intraday and the bears are starting to take over. The reliability of the increases if the gaps up bump into resistance.

Pattern: reversal - Reliability: high