The Engulfing Pattern

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The Engulfing Pattern

Having already given a brief overview of the mechanics of forex price action signals, I think it is now time to explore in detail each of the patterns that I mentioned – starting with one of my favourites: the “engulfing pattern”.

The Bullish Engulfing Pattern

Figure 1.

Firstly, let’s go over the basics of the pattern once again to recap. To begin with, a “bullish engulfing pattern” happens when a bearish candle is wrapped around by a larger bullish candle. But this is not enough. We cannot trade these patterns willy-nilly. We wait for a significant move down before the bullish engulfing candle emerges (see Figure 1.). This shows that the bulls have suddenly taken control, and the likelihood of a move upwards has increased. As you probably know if you have been reading the “Daily Trade”, I like to trade these patterns at significant “zones” of support and resistance.

The Bearish Engulfing Pattern

Figure 2.

The “bearish engulfing pattern” is obviously the opposite scenario. But again, we cannot trade these patterns anywhere on the chart. This time, we wait for a significant move up before the bearish engulfing candle emerges (see Figure 2.). This shows that the bears have suddenly taken control, and the likelihood of a move downwards has increased. Again, I like to trade these off support/resistance levels so that the probability of a move continuing in that direction is increased.

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If you look at my daily trades you will see many examples of these engulfing patterns. The reason I like these patterns in particular is that they visually show that either the bulls or the bears have suddenly wrestled control from the other, and that the market sentiment is changing. I hope this has given you a little more insight into this pattern. I will explain a coupe of other patterns that I like to use next week.

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