Unlock Your Market Wizardry: Conquer the 2025 Chartered Market Technician (CMT) Test!

The correct answer is associated with a pattern that clearly illustrates a reversal in a bearish trend, characterized by a larger body candle completely engulfing a smaller previous candle. This pattern indicates that sellers are losing control, as the larger candle reflects stronger bearish momentum that ultimately overcomes the previous bullish sentiment represented by the smaller body.

In the context of a bearish engulfing pattern, this typically occurs after a downtrend, reinforcing the idea that the momentum is shifting. As the larger bearish candle engulfs the smaller bullish candle, it signals potential for further price declines, often serving as confirmation for traders looking for short positions or setting stop-loss levels based on the trend reversal. Understanding this pattern is crucial for technical analysts, as it represents both the psychology of market participants and potential trading opportunities.

The other patterns mentioned, such as the bullish engulfing, evening star, and doji, serve different functions and indicate various market conditions or signals. For instance, the bullish engulfing suggests a momentum shift from bearish to bullish, while the evening star signifies a reversal after an uptrend, and the doji represents market indecision. Each is valuable in its own context but does not reflect the specific scenario of a larger body engulfing a smaller body during a bearish trend