Figure 1 illustrates the Bearish Engulfing reversal pattern, a major reversal pattern that is made up of a clear body the first day and a dark body on the second. On the first day a white body forms and the price on the second day gaps up and opens higher than the close of the first day, the price on the second day then drops and closes lower than the open of the first day, completely engulfing the body of the first day’s candle. We look for this formation in an oversold market to signal us of a major change in investor psychology. After a good strong uptrend, the engulfing candle of the second day shows heavy selling in a larger proportion to the buying of the first day. To make this signal stronger we would look for:
- Heavy Volume on the second day
- A large body engulfing a small body.
- A large body engulfing the body and the wicks of the first day.
- A temporary run-up in price that was greater than the angle of the uptrend that proceeded it.
- Either candle hitting a point of price resistance, such as an upper trend line, major moving average, or other technical resistance.
Forex candlestick patterns strategy (Figure1)
Forex candlestick patterns strategy
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