To be considered a bearish reversal, there should be an existing uptrend to reverse. In this case, we are in a major downtrend using monthly charts so this minor uptrend since Oct 1.21 is valid as it has occurred over a period of 3 months from 1.21 to 1.27. Bearish reversal patterns within a downtrend would simply confirm existing selling pressure and could be considered continuation patterns. (What we have here.)
There are many methods available to determine the trend. But ours has been explained here frequently and we will not explain again today
Defining your criteria will depend on your trading style, time horizon, and personal preferences.
I wanted to share a secret just with you so please do not share this with anyone else! It’s our secret… hehe!
When you are clear on direction and you have had reversal be looking for those reversals that hold the test of time Engulfing, Abandoned Baby, are my favorites and the script below is courtesy of Steve Nison. Most traders recognize Steve as the authority on Candle patterns and his Nison’s Famous Stock Charts are the place to begin and end your study.
Abandoned Baby: A “rare” reversal pattern characterized by a gap followed by a Doji, which is then followed by another gap in the opposite direction. The shadows on the Doji must completely gap below or above the shadows of the first and third day.
Engulfing Pattern: A reversal pattern that can be bearish or bullish, depending upon whether it appears at the end of an uptrend (bearish engulfing pattern) or a downtrend (bullish engulfing pattern). The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day’s body.
If you decide to get very deep into Charts and attend seminars…. The one I would suggest is Nison’s as he saves the best for his seminars’ guests. The combo engulf shown in the top chart and below here is one of the best and most reliable of candle patterns and you get it free.