Bear Market Candlestick Patterns

Candlestick Pattern Squeeze Trading System

Powerful Candlestick Patterns for a Bear Market

2008 has proved to be a dismal year, at least from an economic perspective. The equities markets have clearly been bearish in tone. Indicators being issued by the government reflect an economy that is deteriorating and moving into a recession. When bear markets like this appear, certain candlestick patterns become an extremely useful tool for investors.

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Candlestick charts offer all the information of a bar chart, but enhance the data in a pictorial display, allowing the investor an improved ability to recognize trends and the likelihood of the continuation or reversal of these movements. Certain candlestick patterns are ideal in our current market.

The Evening Star

The pattern known as the Evening Star is one of the most widely used formations to confirm the continuation of a bear market. The evening star candlestick pattern is easily recognized. The first candlestick should have a long white body followed by a much smaller gapped up price formation that fails, and this is confirmed on the next day with a down close and a closing price below the midpoint of the original first candlestick.

When these types of patterns emerge, there a clear indication that market participants have lost confidence in the possibility of price appreciation and more likely than not, prices will continue to drift downward.

The Harami

Another formation, interpreted by traders as signaling continued bearish sentiment, is known as the Harami. This is a simple two day candlestick pattern with a relatively small body on the second day that is completely surpassed on both sides by the previous day’s candlestick always of the opposite color.

The formation is totally unmistakable. It usually occurs during a minor correction in a bear market and signals that this temporary uptrend is reaching an end, and the underlying downtrend will continue. It is especially considered a strong indicator when it appears together with low trading volume.

The Harami Cross

A variation of the Harami, with the same interpretive consequences, is referred to as the Harami Cross. The only difference between the two is that the second day of the Harami Cross is a Doji; that is, the opening and closing prices are essentially equal. In essence, this one day pattern resembles a type of cross or plus sign. Transactions occur above and below the opening price during the trading session, but there is no consensus in the market as to which way the future direction should be.

Dark Cloud Cover

Another pattern seasoned investors keep an eye out for during a bearish market is referred to as a Dark Cloud Cover candlestick formation. This is a two-day formation. The first has a long white body followed by the second day, which is black, but has a new high, while at the same time closing below the midpoint of the previous day’s trading.

This too is regarded as a bearish reversal pattern that occurs during minor corrections in a downward trending market. The Dark Cloud Cover represents an entry opportunity to benefit from the underlying downward trend.

Because of the improved visualization offered by candlestick charts, several patterns have emerged and are recognized by astute traders as powerful tools to profit in a bear market. An individual investor who can successfully recognize these patterns will greatly improve upon his trading performance.

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