The bullish engulfing pattern (picture
1) is significat contains of two candlesticks; the first is black, and the second is a white candle that completely “engulfs” the
first candle.
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| engulfing pattern |
The size and positioning of the white
candlestick can vary greatly, but the critical feature of the pattern
is that the second candle should be long and its body should
completely encompass the wicks or shadows as well as the body of the
smaller candle. The bigger the candle, the more bullish the signal.
The bearish engulfing pattern works the exact same way except in
reverse. Picture 2 and 3 show both bullish and bearish engulfing
patterns.
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| bullish engulfing pattern |
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| bearish engulfing pattern |
In other words a bullish engulfing
pattern is formed when, during a downtred whitereal 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 exhibits how the opposing forces had
acquired control of the market. 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 over whelmed the bulls.The bullish or bearish engulfing
candlestick formation also if is considered by some to be a reversal
pattern, but is in fact a good signal of a potential breakout or
breakdown. “ 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 candleincluding 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). Steve Nison- Beyond Candlesticks”
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