Bearish Homing Pigeon Pattern – How to trade?


Bearish Homing Pigeon Pattern: Market participants rely on technical analysis to speculate and predict the short-term movement in the stock price. Technical analysis consists of multiple methods to analyze the market. Candlesticks pattern is one of the methods under technical analysis which is used to predict the movement in the stock prices.

In this article on the Bearish Homing Pigeon Pattern, we will try to understand trading strategies with its formation, trends, and examples.

Bearish Homing Pigeon Pattern

What is a Bearish Homing Pigeon Pattern?

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A bearish homing pigeon is a two-candlestick pattern that indicates a bearish reversal in security. This two-candlestick pattern comprises two bullish candles (green candles) with the first bullish candle having a bigger body than the second and the second candle formed within the body of the first candle.

It is preferable for the bearish homing pigeon pattern to appear at the top of an uptrend.

Bearish Homing Pigeon Pattern – Formation

Two conditions need to be filled in for a two-candlestick pattern to be called a bearish homing pigeon:

Condition 1 – Both the candlesticks need to be bullish candles (green candles) with the first candle’s body being bigger than the second candle.

Condition 2 – The second candle’s body needs to be formed within the body of the first candle. 

The best scenario for the bearish homing pigeon pattern to form would be after an uptrend or during a retracement in a downtrend. 

Bearish Homing Pigeon Pattern – Psychology

When the market is in an uptrend, the first green candle in the pattern is formed with a big body because of high buying in the market. But when the next candle is formed, its open and close prices are lower than the close price of the first candle and this indicates a weakness in buying pressure.

This reduction in buying pressure is what potentially brings in more sellers in the market and hence why the market generally tends to reverse the trend and move downwards after the appearance of the bearish homing pigeon pattern.

Confirmation of the Trend Reversal

The bearish homing pigeon pattern can appear in an uptrend or during retracement and indicates a trend reversal and the downward movement of the price. However, safe traders can wait for a confirmation of downward movement before entering a trade. 

If the next candle formed after a bearish homing pigeon pattern is bearish (red candle) and closes below the low price of the pattern, then this acts as a confirmation. This is a good indication that the price will move downwards. 

If the bearish homing pigeon pattern is formed near the resistance zone, then that also adds to the strength of the trend reversal indication as there would already be more sell orders at that zone.

How to Trade using a Bearish Homing Pigeon Pattern

Traders who want to enter a trade based on the formation of the Bearish Homing Pigeon Pattern must always wait for the confirmation mentioned above before placing a trade. Once confirmed, the trade entry, target, and stop loss are as below.

  • Entry – Traders can take a short position once the price of the stock goes below the open price of the second candle. But if a trader wishes to have a safer entry then they can take a short [position once the price of the stock goes below the low of the pattern.
  • Target –  Traders can exit the trade when the price of the stock reaches near the immediate support zone. Once this level is reached, you can also book partial profits in the trade and hold on to the remaining position until the next support level.
  • Stop loss – Traders need to place the stop loss near the high price of the bearish homing pigeon pattern.
Bearish Homing Pigeon PatternBearish Homing Pigeon Pattern

Example Of Bearish Homing Pigeon Pattern

In the above one-day chart of RELIANCE INDS, the bearish homing pigeon pattern was formed after an uptrend. As mentioned in the article, the price went down after the formation of this pattern. When this Bearish Homing Pigeon Pattern was formed, traders could’ve taken a short position at Rs. 2552, and they can stop the loss at Rs. 2582.40.

Conclusion

In this article on the Bearish Homing Pigeon Pattern, we understood that the bearish homing pigeon pattern is an indication of a potential bearish reversal pattern. We also understood how to identify a bearish homing pigeon pattern as well as the psychology behind the formation of this pattern. 

Traders should not take a trade solely based on the formation of this pattern but also include other technical tools and indicators to predict the future movement of the price and then place a trade.  Please let us know about your opinion in the comments below.

Written by Praneeth Kadagi

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