Engulfing Patterns
Bearish Criteria:
• White real body wraps around
Engulfing preceding black real body
Pattern
• Market in down trend
•Implication: Market bottoming out
Criteria:
• Black real body wraps around
preceding white real body
Bullish
• Market in up trend Engulfing
Pattern
Implication: ‘Bulls have been
41 constrained”
Bullish engulfing pattern as support
ORACLE
10.3
10.2
10.1
One of most powerful aspects of 10.0
the bullish engulfing pattern is 9.9
9.8
their use as support. 9.7
9.6
9.5
9.4
9.3
9.2
9.1
9.0
8.9
8.8
8.7
8.6
8.5
8.4
8.3
8.2
8.1
8.0
7.9
7.8
7.7
7.6
7.5
7.4
16 23 30 7 14 21
October
42
Bullish engulfing pattern
S&P Continuation
Shooting
star
Note how
many black
candles the
white
candle
wrapped
around
43
Bullish engulfing pattern as support
While the low of the bullish
engulfing pattern is support,
for those who are more eager
to buy you can use the center Center tall
of the tall white real body as white
an entry point. Keep in the
mind the risk –reward of the
trade.
44
Bearish engulfing pattern as resistance
If the first candle
is a doji instead
of a white real
body it is still
viewed as a
bearish engulfing
pattern.
45
Bearish Engulfing Pattern compared to Western outside reversal
46
Relative Strength
On this day Dow
was down 150
47
Bullish Engulfing Pattern
Is this a
Bullish
Engulfing
Pattern ?
48
Engulfing pattern – comparing size of real bodies
SIERRA WIRELESS
10.6
10.5
10.4
10.3
10.2
10.1
10.0
9.9
9.8
9.7
9.6
9.5
9.4
9.3
9.2
9.1
9.0
8.9
8.8
Consider the relative size of 8.7
8.6
the real bodies. Here they are 8.5
equal size, so reversal is less 8.4
8.3
likely. Final confirmation of 8.2
it’s failure comes with the close 8.1
8.0
under its support area. 7.9
1 8 15 22 29 6
April May
49
Last Engulfing Pattern
Bullish
Engulfing
Pattern
Last
Engulfing
Pattern
50
Last Engulfing Pattern
51
Last Engulfing Pattern
52 Note: This is the same chart as slide 51
Last Engulfing Pattern
53
Dark Cloud Cover
Criteria:
• Opens above prior high (or close)
• Closes as long black real body
• Close well into prior long white candle
• Market moving north
Implication: “Advance is exhausting
itself”
54
Nison Trading
Principle
Not all candle signals should
be used to buy or sell. Always
consider the risk/reward
aspect of the trade.
55
Dark Cloud Cover and Risk/Reward
Pattern
Completed
Here
56
The Blended Candle Line
close 2 =
open 1
Blended candle real body = open
of the first session, close of the
last session. Blended candle
shadows = highest high and
57 lowest close of all sessions
The Blended Candle Line
= =
58
The Checkmate Principle:
A series of tall white candles followed by
black candles (or small real bodies) near the
same resistance level reveals that the bulls’
drive is being “checkmated”
A series of long black candles followed by
white candles (or small real bodies) near the
same support level reveals that the bears’
drive is being “checkmated”
59
Bearish Checkmate
☺9 ☺9 ☺9
☺9
☺ = strong session
9 = failure to sustain rally
This shows lack of bullish follow
through shows that each time this gets
in the 60-64 range.
60