Chartered Market Technician (CMT) Practice Exam

The bearish engulfing pattern is a well-recognized candlestick formation that signals a potential reversal from an uptrend to a downtrend. This pattern typically consists of two candles: the first is a smaller bullish (white or green) candle, and the second is a larger bearish (black or red) candle that completely engulfs the body of the first candle. The engulfing nature of this pattern is significant because it suggests that selling pressure has entered the market with enough force to overcome the previous buying activity represented by the first candle. This shift in momentum often indicates that buyers are losing control and sellers are now more dominant, leading traders to consider the possibility of a price decline ahead. The other options, while important concepts in candlestick charting, do not signal bearish reversals in the same way. For instance, the doji indicates indecision in the market rather than a clear bearish signal. The hammer, typically found after a downtrend, suggests potential bullish reversal rather than bearish. The bullish engulfing pattern, conversely, suggests a transition from bearish to bullish, not the opposite. Understanding these patterns and their implications is critical for successful technical analysis in market trading.