Just as its name suggests, the bearish squeeze alert candlestick pattern should be treated as a valuable alert signal that the market is in for a swift and dramatic change of direction. This three candlestick formation rarely occurs, but when it does you should immediately plan for a short position.
This candlestick pattern occurs during a bullish market. The sellers have been the dominant force, and the first day of this pattern seems to suggest a continuation of this trend. There is a white candlestick with a very short upper wick, which suggests that the market closed near its daily high. However, the second day opens significantly lower than the previous day’s close and finishes with a black candlestick. The third day opens near the second day’s opening, but also closes lows with a black candlestick. These three candlestick bodies are often aligned so that each day is centered within the previous day’s body.
The significance of this pattern is that a bearish takeover is likely about to occur. It’s possible that the closing point of the first day is a threshold that the bulls simply cannot push through. While nothing in the stock market is definite, this should be taken as a strong indicator.
Your Next Move
This clearly is not the time to buy a stock. In fact, it is most likely time to sell. If you don’t want to act immediately, the fourth day will likely have confirmation that a bearish market is taking hold.
Confirmation
Confirmation on the fourth day would include any sort of ambivalence or downward movement. You might see a black candlestick, a gap down, or a lower close. Rarely, a Doji occurs, which suggests that there is ambivalence about this market. All of these signals point to a reversal in the very near future.
Variations
The only variations of this pattern are in the length of the candlesticks and the length of the wicks. In this case, the length of the wicks is rather insignificant in the last two days, and the wicks on all days of this pattern are usually relatively short. However, the larger the black bodies are in relation to the first white body, the more likely it becomes that the bears are winning the struggle.
Similar Patterns
The bearish squeeze alert is similar to the bearish abandoned baby candlestick pattern. However, with the bearish abandoned baby, the second day is a Doji instead of a long black candlestick body. In any case, both formations suggest a reversal with moderate strength.
This is an important formation for investors to recognize because it indicates that now is not a good time to buy. In fact, it is a good time to maximize your profit by selling and let other people hang around to see whether the market is turning. The height of the first day is usually a ceiling that the bulls simply cannot push through. In almost all cases, a reversal is in the very near future.
