Bearish Low Reliability Candlestick Patterns

 Bearish Low Reliability Candlestick Patterns

1. Bearish Belt Hold. 2. Bearish Hanging Man. 3. Bearish Shooting Star. 
4. Bearish Harami.



 1. Bearish Belt Hold.

Pattern: reversal
Reliability: low

Identification
A black day occurs with no upper shadow and a close near the day's low.

The Psychology
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.

 

2. Bearish Hanging Man.

Pattern: reversal
Reliability: low/moderate

Identification
A small real body forms at the upper end of the trading range with a long lower shadow (the longer the more bearish) with no, or almost no upper shadow.

The Psychology
In an uptrend or within a bounce of a downtrend, a sharp intraday sell-off is followed by a reversal which causes the stock to close near its opening price near the day's high. Although the stock recovers from its intraday sell-off, it suggests the bulls are starting to lose strength, and a reversal may occur. The pattern is a slightly more reliable if the real body is black. A weak following day on solid volume is still needed to confirm the pattern.
The bearish Hanging Man is similar to the bullish Dragonfly Doji and bullish Hammer.

 

Bearish Hanging Man candles form very often so you need to use other indicators to confirm potential moves. Here BBBY formed a Hanging Man candle that was followed up by a bearish Engulfing stick. That's a good one-two combination to play. 

 

After making a higher high DPH formed a bearish Hanging Man candle on strong volume and was followed a filled candle that confirmed the reversal of the uptrend. 

 

 Here is a bearish Hanging Man candle that would be best used to exit a long position rather than as a short entry. The stock is simply too strong to short unless you are a very slick short term trader. 

3. Bearish Shooting Star. 

Pattern: reversal
Reliability: low/moderate

Identification
A small body forms at the lower end of the trading range. The upper shadow is usually long while the lower shadow is small or almost nonexistent.

The Psychology
In an uptrend or within a bounce of a downtrend, the stock gaps up. A valid attempt is made to rally the stock, but the strength subsides and the stock falls to close near the day's low and near its opening price. Failure to follow through with strength suggests the bulls may be losing strength. Although this is not necessarily extremely bearish, it is less bullish, so stops should be moved up or profits taken on longs. For a reversal to occur a weak day is needed to confirm the pattern.
The bearish Shooting Star is similar to the bullish Inverted Hammer, bearish Gravestone Doji, and bullish Gravestone Doji. 

 

 Here is an example of how a bearish Shooting Star can be used to pick the top of a range. BMY was trading aimlessly without much conviction in either direction, so a buying the bottom and selling and selling short the top would provide profits for the patient trade. After the stock bounced from 25 to over 27, it was a Shooting Star candle that signaled the top

 

Shorting a Shooting Star pattern at the end of a high volume rally is very risky, but if the candle forms at resistance (notice 17 was the previous high) like it did here with NEOF, the reliability of a successful reversal significantly increases. 

 

 Here's a risky play. DCLK was in a good uptrend when it formed a bearish Shooting Star candle. It's a sign that longs should look to take some money off the table, but only aggressive traders should look to short such a strong stock.

 4. Bearish Harami.

Pattern: reversal
Reliability: low

Identification
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.

The Psychology
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.
The bearish Harami could be the first two days of bearish Three Inside Down. 

 

Bearish Harami formations carry low reliability but when they occur at resistance like with APH, reliability increases and the risk/reward tradeoff shifts to a more favorable level. 

 

Here is an example of a bearish Harami forming right at resistance. This situation offers the safest entry on the short side because your risk to the upside is small while your potential gain is great because the stock will likely trade back to support.

 

AA also formed a bearish Harami at resistance. Notice the lack of volume on the rally up to the previous high. That's hint #1 that the stock has limited upside potential. When the stock got rejected and dropped on big volume and then gapped down the next day, the Harami candle was confirmed, and the stock did indeed reverse course.