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Forex Trading Course – Engulfing Pattern
The engulfing patterns comes in two formats – bullish and bearish. When the market is falling, we are looking for the bullish engulfing pattern to act as a reversal pattern. In order to qualify, the last candle has to engulf the prior black candle's real body. In simple terms, this means that despite the engulfing candle opening lower in the session, the pressure from the bulls has come into play and sellers are starting to back away. The bearish engulfing pattern works in a similar way but on the opposite end of the scale. In an up-trend a black real body is required to engulf the prior white real body. By 'hugging' the prior session's candle the market is telling us that the supply has surpassed demand i.e. demand is on the decrease and the bulls back away due to selling pressure. Whilst learning this formation on your Forex trading course make sure that you write down a set of specific rules that apply to the engulfing pattern. Once written, follow them and do not accept patterns that are not in a formation you are familiar with. For example, in your notes and chart analysis you must ensure that both the bullish and bearish engulfing patterns are at the end of a clear trend – down-trend for the bullish engulfing pattern and up-trend for the bearish engulfing pattern. It does not matter how short or long the trend is; it only matters that it is a trend. The second real body in the formation also has to engulf the prior real body. There is no alternative to this rule. In this instance the shadows are irrelevant and the second candle does not need to 'hug' them. The focus is purely on the real bodies. This means that in a bullish engulfing pattern the open is lower than the prior close and the close is higher than the prior open. In a bearish engulfing formation the open needs to be above the prior session's close and the close is required to be below the prior session's open. So, now that we know the characteristics of an engulfing pattern, when do we use it? This will depend on what you are taught throughout your Forex training but there are factors which should be considered. The first candle in the formation should have a small real body to signify the weakness in that trend (up-trend or down-trend). The second candle should be a healthy and large real body that signifies the power of the opposing side. Also, the engulfing pattern should be considered in your Forex trading strategy when it appears at the end of a fast or a long trend. Once these types of trends appear the market is telling us that it is overbought or oversold. If this is the case the chances of the market reversing increase substantially. Lastly, the volume in the second session's candle is among the most important factors. Despite the second candle engulfing the prior candle, a lack of volume might mean that there is not enough gas in the tank. However, large volume in the engulfing candle's session means that the power levels are high and the market is more prone to a reversal. Article Directory: http://www.articledashboard.com For more information on Forex training visit the Forex Training Worldwide website where you can find details on our Forex trading course. |
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