Candlestick Engulfing

The Candlestick Engulfing pattern is the most common price reversal pattern. It is important for you to study and understand this very useful pattern while trading currencies. Engulfing Candles have proved to be very powerful tool to project future price movement.

Bullish Engulfing candle is a pattern characterized by a large white real body engulfing a preceding small black real body. The white body is seen to engulf not only the shadows of the black body but e body itself completely. The Bullish Engulfing Pattern is an important bottom reversal signal, characterized by downtrend.. We see a small black body, followed by a white body the next day, which completely engulfs the black real body of the prior day.

It is important to observe the relative size of the bodies in the first and second days. A very small real body on the first day, followed by a very long real body, strongly indicates that the bearish power is diminishing. The inequality of white versus black body is indicative of the emerging bull power.

In the Bearish Engulfing Pattern, you will observe a large black real body, engulfing the small white real body in an uptrend. You will see a white candlestick in the first day, which is completely engulfed by black candlestick. The short, white real body reflects diminished buying, with the market is in a bull mood. Followed by a strong sell-off, the bears seem to be gaining strength.

The relative sizes of the real bodies of the first and second days are important. A very small real body on the first day and a very long real body on the second day show an increase in bearish force. A fast move makes the market overextended and vulnerable to profit taking. If there is heavy volume on the second real body, a bearish reversal is more possible. However, a confirmation in the third day is required to be sure that the uptrend has reversed.

If there is heavy volume on the second real body or if the second day of the Bearish Engulfing Pattern engulfs more than one real body.

A confirmation in the third day is required to be sure that the uptrend has reversed. The confirmation may be in the form of a black candlestick, a large gap down or a lower close on the third day.