Here is my first post regarding the long engulfing pattern.
By
tymen1 at 2008-07-14
There are 2 drawings here.
The first is the traditional long engulfing.
It is the one used in
stock trading.
The body-to-body is the critical component.
It is a stronger signal if the 2nd candle engulfs the entire range of trading, that is, the shadows (wicks) as well.
The
close of the red candle (bottom of red body) and the
open of the green candle (bottom of green body) are
apart from one another, that is, there is a
gap between them.
This is important.
It shows the extent of the powerful upthrust of the price action in the green candle, that is, the bulls have taken control.
If there has been a downtrend, a reversal here may be expected, and the price action now to go upwards.
The 2nd drawing shows the engulfing pattern in forex.
Here we
do not have gap action since the price is 24 hour continuous.
The close of the red candle (bottom of red body) is equal to the open of the green candle (bottom or green body).
These points are, therefore, level.
So how do we discern an engulfer in forex??
Well, we look to the wicks or shadows.
The lower wick of the green candle should be
longer than the lower wick of the red candle.
This shows that price action has bottomed out and a powerful upthrust has occurred to produce the green candle - hence the bulls are now in control.
Where the green candle is longer than the red one but the
lower wick relationship is not correct,
we rule out such a pattern.
So the following requirements apply.......
1) Two candles on lower Bollinger band, 1st one a bear candle (red), 2nd one a bull candle (green).
2) Bull candle (green) is longer than the bear candle (red).
3) Both body bottoms are equal.
4) Bottom wicks - the 2nd candle, the bull candle (green), has the longer wick.
If these wicks are equal in length, other considerations are taken into account.
The length of the top wicks is not so significant.
The body-to-body relationship is the most important part.
The Bollinger band direction applies just as it did in the evening star pattern.
That's all for now. Tomorrow, some examples.