Mastering Bullish Or Bearish Engulfing Candlestick Patterns Can Be Highly Profitable
There are many candlestick patterns. Some are simple. Others are complex. One stick patterns are simple. Engulfing Candlestick Pattern is a two stick pattern can can signal the reversal of a trend. Spotting a trend reversal before time is what can give you the edge as a trader.
Double candlestick patterns are more complex than single candlestick patterns. You have to wait for two days for the pattern to shape up. It happens most of the time that you spot a double candlestick pattern developing on the first day but when you follow it the next day, you get disappointed as the pattern fizzles out.
Nevertheless, these double stick candlestick patterns do occur and if spotted correctly can be highly profitable. One of the most popular double candlestick patterns is the Engulfing Pattern. This pattern signals the end of the existing trend and the beginning of a new trend. There are two type of Engulfing Patterns, bullish and bearish.
A Bullish Engulfing Candlestick Pattern has a candle on the second day that completely covers the first day bullish candle. The open on the second day candle is lower than the open on the first day.
Thus indicating that the bears are still in control but soon these bears are overcome by the bulls. Selling is soon reversed by the emergence of buying. Infact so much buying takes place that both the previous days open and high both are surpassed.
Similarly a bearish engulfing candlstick pattern has to appear in an uptrend in order to be meaningful. When this pattern appears bears get into action. Short sellers think that the prices have gone too high and start massive selling in order to take profit and exit before others also start selling.
Soon, the price of the security is pushed down lower than the open of the first day. The second day candle is bearish and completely covers the first day candle. When the bearish engulfing pattern appears, it is an indication that the uptrend has reversed and a downtrend has started now.
When trading a bullish engulfing pattern place the sell stop on the low of the setup day or the first day to be on the safe side. And when trading a bearish engulfing pattern, place your stops at the open of the second day. This is a good place to place your stops.
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