30. How to Trade the Bullish/Bearish Engulfing Candlesticks

Practice these concepts with a free practice charting and trading account here: http://bit.ly/IT-forex-demo3 For the full lesson with images, text, links, and discussion, go here: http://www.informedtrades.com/4642-how-trade-bullish-bearish-engulfing-candlestick-chart-patterns.html For our full beginner course in technical analysis and trading, go here: http://www.informedtrades.com/index.php?page=freetradingcourses And of course, don't forget to jump start your learning as a trader by registering as a member of our learning community: http://www.informedtrades.com VIDEO NOTES In our last lesson we looked at two candlestick patterns which represent an indecisive moment in the market and can also represent a potential trend reversal when seen during an uptrend or downtrend in the market and are known as the spinning top and doji candlestick patterns. In today's lesson we are going to look at two more candlestick patterns which also can represent potential reversals which are known as the Bullish and Bearish Engulfing Patterns. The Bullish Engulfing Pattern The Bullish Engulfing pattern is another candlestick formation which represents a potential reversal in the market when seen in a downtrend. The pattern is made up of a white and black candle where the latest candle (the white candle) opens lower than the previous candle's (the black candle) close and closes higher than the previous candle's open. When this happens the current period's white candle completely engulfs the body previous period's black candle. Unlike the Spinning Top and the Doji we learned about in the last lesson, the Bullish Engulfing Pattern represents not indecision in the market, but a situation where the control has shifted from sellers to buyers. The long body of the current candle completely engulfing the body of the previous candle to the upside is representative that the buyers have not only taken control, but have taken control with force. As such, when this pattern is seen during a downtrend in the market it is seen as a potential sign that the trend may be reversing. There are several instances where traders will normally see greater potential for a reversal which are: The longer the white candle and the smaller the black candle which precedes it the greater the potential for reversal When the white candle completely engulfs the black candle that precedes it When there is large volume during the period in which the white candle forms The Bearish Engulfing Pattern The Bearish Engulfing Pattern is a Mirror Image of the Bullish Engulfing Pattern so the same rules apply, just in reverse. The Bearish Engulfing pattern when seen in an uptrend is representative of a potential reversal of that trend. The pattern is made up of a white and black candle where the latest candle (the black candle) opens higher than the previous candle's (the white candle) close and closes lower than the previous candle's open. When this happens the current period's black candle completely engulfs the body of the previous period's white candle. There are several instances where traders will normally see greater potential for a reversal which are: The longer the black candle and the smaller the white candle which precedes it the greater the potential for reversal When the black candle completely engulfs the white candle that precedes it When there is large volume during the period in which the white candle forms

Comments

1. bull's eye !!! This is exactly I was looking for to start my tech analysis studies ...
2. That's a bunch of Bull.
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6. Dave, should Engulfing Candlesticks in FOREX be used during major NEWS Releases or when the market is more stable? Thanks, Great Videos !!!!!!
7. hi david again. Im sorry if I'm annoying you with yet another question, i know you must be a very busy man. how late into the day would you buy your stock on a bullish engulfing candle or would you wait for a confirming candle the next day. Also where should you place your stop loss? YOUR A LEGEND!
8. Thanks for the comment I am glad you like it. My favorite thing to combine with any chart pattern or indicator is just simple analysis of support and resistance which I draw in on the chart by hand. With this being said to the point where the indicators you mention can help you determine how likely/unlikely a support or resistance level is to hold then yes I could see them adding value. Best Regards, Dave
9. this video would be much easier to understand if you would use a pointer to point to exactly the points you are speaking of. im lost.
10. Hey iboibo2007, I don't normally look at things as if this happens then this is going to happen but more so if this happens then this is an indication of this. So if the market is very oversold and then on top of this you get a bearish candlestick pattern then I would look for other indications such as support and resistance areas to determine what the appropriate action if any should be. Hope that helps. Best Regards, Dave
11. Dave, if a bearish engulfing pattern happens (and confirmed the next day) when RSI is really low ..say RSI(9)=15..so, one one hand we have a bearish signal but on the other, we know market is way oversold and should bounce back anytime..so what will likely happen? should we expect a bear or a bull? thanks a lot for your time, i just love your lessons and appreciate your help.
12. Hi, Many traders will recommend sitting out the first hour of the market, especially if you are new to the market, as this tends to be a highly volatile time in the market where it is easy to get whipsawed. This is especially true in the first 15 minutes after the open. Best Regards, Dave
13. I agree. All candlestick readings should always be cross checked with the other indicators. I don't hink one should just rely on on type of reading to evetually decide a trade.
14. Hi forexchemi, I don't always show the indicator confirmations just in the interest of saving time but in general I think most traders would agree that traders should always confirm trades with multiple pieces of analysis. Best Regards, Dave
15. Hi Jeff, Thanks for the comment. Yes I think most traders would agree that if the engulfing candlestick covers multiple previous candlesticks it makes the possibility of a reversal all that more possible because it shows the power of the reversal candle is much greater than the power of the candles leading up to that thus more evidence that the tide is turning. Best Regards, Dave