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Keep in mind most patterns requires a confirmation. For example, just because we see an engulfing pattern on a uptrend that doesn't mean an auto sell assuming it'll turn
there. In
order to move reverse, we need to see convincingly buyers or sellers overcomes one another in quantitative terms. High probability trades develops when these
patterns occurs in supply/demand zones.
Engulfing patterns are made of two candlestick, one down and one up. Bull and Bear candles. The picture on the left uses red for price going down [bear candle] and
green
for price going up [bull candle. Different traders may use different colors which is not important.
The important aspect that second candle totally engulfs the first one. It's even better if the body of the second candle even covers the first candles wicks too.However, it's not
necessery. Wicks are allowed, they are usually small or non exist intent.
The size of the first candle is not important but it shouldn't be a doji as it would be very easy to cover therefore force of the opposite move will suggest it's a weak one.
However, the size of the second candle does matter. Bigger is better [within reason]
o
Look for the existing trend up or down
o
See if the engulfing patterns occurs within supply and demand zones. Remember, engulfing patterns occurring in new highs or ranging markets cannot
be considered
bearish or bullish reversal.. It'd more likely be a continuation.
How do we determine the existing of down or up trend? Some of the followings may be used for this purpose but my favorite one is to identify supply and demand levels and
work from there.