Candlestick Patterns
Resources for Advanced Trading

Candlestick Engulfing Patterns

Candlestick Patterns

Engulfing Bullish = Bullish Reversal - Potential Buy Signal

The Engulfing Bullish pattern is formed when a black candle is completely engulfed by a larger white candle after an extended down trend. In some cases, this pattern will form after a retracement of a bullish trend to begin another bullish rally.

The Engulfing Bullish pattern represents a complete reversal of a previous bearish trend. This type of pattern is a very common type of bottom reversal formation and is commonly found at the beginning of bullish rallies. Confirmation of this type of pattern would occur with a following session that is a white candle and closes higher with a higher high and low price.

A variation of the Engulfing Bullish pattern is the Last Engulfing Bullish pattern. This pattern looks similar to the example above and is found after an extended bullish trend. The Last Engulfing Bullish pattern represents the bulls final attempt to drive the market higher. If one is long and a Last Engulfing Bullish pattern forms, one should identify a protective stop level near the lows of the Last Engulfing Bullish pattern to protect any profit in the trade.

The Engulfing Bearish pattern is the reverse of the Engulfing Bullish pattern. It is formed when a white candle is completely engulfed by a larger black candle after an extended up trend. The Engulfing Bearish pattern is commonly found at market tops and at the beginning of a bearish price decline.

Again, a variation of this pattern is called the Last Engulfing Bearish pattern. This variation is commonly found after an extended down trend and represents the bears final attempt to drive the market price lower. If one is short and a Last Engulfing Bearish pattern forms, one should identify a protective stop level near the highs of the Last Engulfing Bearish pattern to protect any profit in the trade.

Western traders call this type of pattern an Outside Day because the current sessions range completely engulfed the previous sessions range.

The Engulfing Bullish and Engulfing Bearish patterns can also be found at corrections in a long-term market trend. When the market attempts to breathe by correcting from its original trend before resuming the original trend, often an Engulfing pattern will form. Investors should be aware of this formation because the market may not correct far enough for any profits to result in the trade. Investors should use a protective stop level to protect against such unwanted losses.

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