Candlesticks - The Engulfing

The Engulfing Patterns

A bullish engulfing pattern is formed when, during a downtrend white real body wraps around a black real body. A bearish engulfing pattern is completed when, during a rally, a black real body envelops a white real body.

The engulfing pattern visually shows how the opposing forces had gained control of the market. For example, a bullish engulfing pattern reflects how the bulls have wrested control of the market from the bears. A bearish engulfing pattern shows how a superior force of supply has overwhelmed the bulls. This means that the bearish engulfing pattern is more bearish than a dark cloud cover, and a bullish engulfing pattern more bullish than a piercing pattern, it is equally important to see where these patterns emerge before deciding which is more important. For instance, a piercing pattern that confirms a major support area should be viewed more likely as a bottom reversal signal than a bullish engulfing pattern that does not confirm support.

Not all engulfing patterns are equally important. The importance of the engulfing pattern is dependent on the relative size of the real bodies, the relationship of the shadows to one another, and other factors. For example, the strictest definition of an engulfing pattern would be if the first candle is small and the second candle very large, and the second real body wraps around the entire first candle-including its shadows. The next strictest definition would be if the shadows of the second candle exceeded the shadows of the first candle (in other words, on the second day of the engulfing pattern, the market made a higher high and a lower low).

As with a dark cloud cover, if the market surpasses an engulfing pattern, it is said to go opposite to the pattern. This means that if prices close above the top of the bearish engulfing pattern (including the upper shadows), the outlook turns from bearish to bullish.

However, if there are two almost equal size candles that comprise the engulfing pattern, the market may move into a lateral band, rather than reverse.

Last Engulfing Patterns

Bearish engulfing pattern is a large black candle that envelops a small white real body after an uptrend. However, if a bearish engulfing pattern appears during a priced decline it has the potential of being a bullish bottom reversal signal.This pattern is known as a laste engulfing bottom. The last engulfing pattern is viewed as a turning point for the bulls if prices can close above the black candle's close. A bullish engulfing pattern is a two-candlestick Pattern in which, during a downtrend, a large white candle wraps around a prior small black real body. However, if, during a rising market, a large white candle engulfs the previous day's black candle, it is a potentially bearish pattern, referred to as a last engulfing top . In candle theory, the bearishness of this pattern is confirmed if the next day the market closes under the prior white candle's close.

The last engulfing top appears in an uptrend, so the merged candle line can be compared to a potentially bearish hanging man line. The japanese colorfully compare the last engulfing pattern top to double lovers' suicide. This is because you fall in love with the market (because of the last engulfing pattern's long white candle), but both you and the market perish together. These words might be a little strong, but they convey the cautionary approach traders should take after the emergence of a last engulfing pattern.