Investor Pattern Recognition Engulfing Pattern

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The Engulfing Pattern describes Investor Education bullish reversal pattern.. View also all equity analysis

Engulfing Pattern In A Nutshell

An engulfing pattern occurs when the first candle forms, and typically is small bodied with normal sized wicks, meaning the market closed close to the open, but had a wide trading period. The second candle has a much larger trading body, which engulfs that previous trading period, meaning there is a shift in the market. The candle is in the reverse of the current trend and the open is below and close is above the previous candle.

Finding a pattern can be easy for some patterns and difficult for others, but the engulfing patter is probably one of the easier ones. Its name eludes to the pattern itself, which is when the first candle is engulfed by the second candle. This is effective for bother bearish and bullish trends, but there are a few aspects to take into consideration when evaluating the potential change.

Closer Look at Engulfing Pattern

Some things to keep in mind is first, why did the engulfing candle occur? You have to check the news and fundamentals to ensure there wasn’t a huge reason for the shift in the market. Secondly, you want to look at volume to understand if there are people behind this move. If the pattern occurred with lower than usual volume, you have to then dig deeper and maybe look into the flow of funds.  

This pattern works in both markets and can be a great way to grab your attention when looking for potential entry and exit opportunities. As with any trading tool or pattern, they are not one hundred percent accurate so be sure to test it before bringing it on full time. Engulfing patterns are easier to spot then most candlestick patterns, but understand why they form can be a whole other task.

Investor Education Technical Analysis Modules

Most technical analysis of Investor Education help investors determine whether a current trend will continue and, if not, when it will shift. We provide a combination of tools to recognize potential entry and exit points for Investor from various momentum indicators to cycle indicators. When you analyze Investor charts, please remember that the event formation may indicate an entry point for a short seller, and look at other indicators across different periods to confirm that a breakdown or reversion is likely to occur.

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