Candlestick Pattern Volume-6 - Compressed

Candlestick
Patterns
Engulfing Candlestick Pattern
VOLUME-6
What is the Engulfing
pattern?
Traders often utilize the engulfing pattern as a signal to

enter the market and anticipate a potential reversal in the
ongoing trend. This pattern consists of two candlesticks,
with one candle completely "engulfing" the body of the
other. For a valid engulfing pattern, the first candle must fit
entirely within the body of the second candle.
The engulfing candle can be either bearish or bullish,
depending on its position in the current trend. The reverse
scenario is also possible. As it is formed by two candles, it is
classified as a double candlestick pattern. Each candlestick
represents the range between the opening and closing
prices for a specific trading period, which can range from
seconds to days or even longer, depending on the chart
settings. Comparing two consecutive bars provides
valuable insight into the market direction over time. The
color of the candle indicates whether the price has
increased (green or white) or decreased (red or black).
How to identify the
Engulfing
candlestick pattern?
In order to have a perfect engulfing candlestick, none of the

first candle's components should extend beyond the shadow
or wick of the second candle. This means that the second
candle's high and low completely encompass the first candle.
However, the primary focus is on the body of the candle.
Engulfing candles are widely used to determine whether the
market is experiencing upward or downward pressure. It is
important to note, however, that engulfing candles are
lagging technical indicators, which means they appear after
price movements have occurred. They require data from the
two preceding candlesticks to provide a signal.
Bullish engulfing
pattern
Bullish engulfing
pattern
The appearance of a bullish candle below a downtrend is a

strong signal indicating increased buying pressure and a
potential reversal of the current trend. This pattern consists of
two candles, with the second candle completely engulfing the
previous red candle, regardless of the length of the tail
shadows.
This two-candle reversal pattern starts with a dark candle
followed by a larger hollow candle. On the second day, prices
are lower than the previous low, but buying pressure drives
the price higher than the previous high, resulting in a clear
victory for buyers. Traders are advised to enter a long
position when the price surpasses the high of the second
engulfing candle.
When the bullish pattern appears, it is important for price
action to clearly demonstrate a downtrend. The presence of a
large candle suggests a significant number of buyers in the
market, which reinforces the expectation of further upward
movement. Traders then seek confirmation of the trend
reversal through the use of indicators such as important
resistance and support levels, as well as subsequent price
action following the engulfing pattern.
Bearish engulfing
pattern
Bearish engulfing
pattern
A bearish engulfing chart pattern is a technical pattern that

indicates the likelihood of lower prices in the future. It consists
of a large up candle followed by an even larger down candle
that completely engulfs the previous candle. This pattern is
significant because it suggests that sellers have taken control
of the market, driving the price down more aggressively than
buyers can push it up.
The bearish engulfing pattern is essentially the opposite of a
bullish pattern. It provides a strong signal when observed
above an uptrend and indicates increased selling pressure.
Bearish engulfing
pattern
.
This pattern often leads to a reversal of the trend as more
sellers enter the market, exerting further downward pressure
on prices. It consists of two candles, with the second candle
completely engulfing the previous green candle.
When the bearish pattern appears, it is important for the
price action to clearly demonstrate an uptrend. The presence
of a large bearish candle signifies that sellers are actively
entering the market. This reinforces the expectation of
continued downward momentum. Traders will then seek
confirmation that the trend is indeed reversing by looking for
additional indicators and signals.
What does Bullish
Engulfing patterns tell
traders?
The bullish candlestick conveys a strong message to traders
that buyers have taken control of the market, especially after
a period of declining prices. It serves as a signal to consider
buying and capitalize on the market's reversal. Additionally,
the bullish pattern prompts traders with short positions to
contemplate closing those trades.
While the wicks of engulfing candles are not as crucial as the
candle bodies, the second candle in a bullish engulfing
pattern can provide valuable information about where to
place a stop-loss order for a long position. The stop-loss level
represents the lowest price at which a trader is willing to sell
an asset in order to limit potential losses. Therefore, if the
current upward trend were to reverse, the trader would have
a clear exit point for their position.
What does Bearish
Engulfing patterns tell
traders?
A bearish pattern indicates that the market is likely to
transition into a downtrend after a previous price increase.
This pattern signifies that bears have gained control of the
market and may continue to push prices lower. It is often
viewed as a signal to consider entering a short position in
the market.
Furthermore, the pattern suggests that traders who are
currently in a long position should contemplate closing their
trades.
Although the wicks of the candles are generally not given
much importance in the pattern, they can provide traders
with an idea of where to place a stop-loss order. In the case
of a bearish engulfing pattern, it is advisable to set the stop-
loss above the upper wick of the red candle. This level
represents the highest price at which buyers were willing to
purchase the asset before its decline.
How to trade when you see
the Engulfing candlestick
pattern?
Isolate the trend : To trade the engulfing candle pattern, the
first thing you need to do is determine the direction of the
strongest trend. This will be the direction in which you will
trade.
If there is an uptrend, it is characterized by higher highs and
higher lows in price. During an uptrend, you should only
take long positions, buying with the intention of selling later
when the price increases.
On the other hand, if there is a downtrend, it is indicated by
lower lows and lower highs in price. In a downtrend, you
should only take short positions, selling an asset that you
have borrowed with the intention of buying it back later
when the price goes down.
How to trade when you
see the Engulfing
Watch for upward or downward pullback :Once you have

determined the direction of the trend, the next step is to wait
for a pullback. A pullback refers to a temporary reversal or
retracement in the price movement.
However, it's important to note that if you are unable to
identify a clear trend or if the trend is not evident, it is
advisable not to use this particular trading strategy. It's
essential to have a clear understanding of the market trend
before implementing any specific trading approach.
see the Engulfing
Entering the trade after the engulfing candlestick pattern:
Once you have identified the trend and observed a pullback,
it's time to enter the trade. Utilizing the engulfing candle
strategy, you can initiate your trade.
For short positions, place a stop-loss order above the
current high. This means setting a price level at which you
will exit the trade to limit potential losses.
For long positions, set a stop-loss order below the current
low. This ensures that you have an exit point in place to
protect your investment in case the price moves against
you.
Remember, setting a stop-loss is an important risk
management tool that helps you control your losses and
protect your trading capital.
see the Dark Cloud
Cover pattern?
Exiting the trade :A good rule of thumb in trading is to aim
for winning trades that are at least twice the size of your
losing trades. To determine this, measure the distance
between your entry point and where you placed your stop-
loss order.
If you notice the trend attempting to reverse during a short
trade in a downtrend, indicated by the market making a
higher high and higher low, it may be a sign to exit the trade.
Similarly, during a long trade in an uptrend, if you observe
a lower high and lower low, it could be a signal to exit the
trade.
Monitoring these price movements and trends is important
in managing your trades effectively and making informed
decisions about when to exit. Remember, it's essential to
always stay vigilant and adapt your strategy based on the
current market conditions.
How does the Engulfing pattern
look in real life?
How does the Engulfing
pattern look in real life?
Islami Bank Securities Limited

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Candlestick

Traders often utilize the engulfing pattern as a signal to

In order to have a perfect engulfing candlestick, none of the

The appearance of a bullish candle below a downtrend is a

A bearish engulfing chart pattern is a technical pattern that

Watch for upward or downward pullback :Once you have

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