A bearish engulfing candle
occurs after a significant uptrend. Again,
the shadows need not be
surrounded.
In order for the Bullish Engulfing signal to be valid, the following conditions must exist:
•
The stock must have been in a definite downtrend before this signal occurs. This can be
visually seen on the chart.
•
The second day of the signal should be a white candle opening below the Close of the previous
day and closing above the Open of the previous day’s black candle.
.
For example = ECL
On the dark cloud
cover day, the stock closes at least halfway into the previous white capping candle.
The larger the penetration of the previous candle (that is , the closer this candle is a being a bearish
engulfing), the more powerful the signal. Traders should pay particular attention to a dark cloud cover
candle if it occurs at an important resistance area and if the end of day volume is strong.
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