Archive for April, 2010
Improve Your Market Timing: The Bullish Engulfing Pattern
April 30th, 2010 | 
Author: - The Bullish Engulfing Pattern is a bullish reversal pattern and is considered a major candlestick formation.
- The pattern is most effective when found at the bottom of a downtrend.
- The pattern represents a change in investor sentiment and is characterized by an initial gap down from the prior trading day.
- The stock will not follow through with the initial gap and will begin to trade up on increased volume.
- The mature pattern will end the session with a close above the prior session’s open, thus engulfing the prior session’s real body.
- The pattern is considered stronger when the stock trades up from a larger gap down and if it not only engulfs the real body but the entire trading range of the prior session.
- Sometimes you will see a situation when the Bullish Engulfing Pattern wraps around and engulfs several prior sessions and that is a very convincing reversal scenario.
- The Pattern is additionally effective when combined with a pre-defined level of support as represented by chart patterns, major moving averages, Fibonacci levels and trend lines.
- Oscillators such as Stochastics or RSI can also confirm a changing sentiment from being oversold to becoming more bullish.
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Improve Your Market Timing: The Piercing Line Candlestick Pattern
- The Piercing Line pattern is a two session pattern found in a bearish market.
- The pattern is most effective when found at a level of pre-defined support such as a double bottom or a major moving average.
- The candle will gap down and then proceed to trade up and close past the half way point of the previous bearish candle.
- The pattern is even more convincing as a reversal when the stock recovers from a significant gap to the downside and trades up with increased volume.
- The pattern is very similar to a Bullish Engulfing pattern but is not quite a bullish.
Improve Your Market Timing: The Dark Cloud Cover Pattern
- The Dark Cloud is a two candlestick pattern that is found at the top of a trend is bearish and warns us to “take out the umbrella” because a storm is brewing.
- The Dark Cloud forms with an initial gap up above the prior day’s close and proceeds to trade down and close at least half way into the previous day’s bullish candle.
- The Dark Cloud is a bearish reversal pattern and is enhanced if the move is accomplished with higher volume.
- The Dark Cloud appears to be forming a Bullish Engulfing pattern but does not trade low enough to engulf the prior day’s candle and is not considered quite as bearish as an engulfing pattern.
- The larger the bullish candle and the Dark Cloud candle, the more convincing the pattern becomes.
- The Dark Cloud Cover is the inverse of the Piercing Line pattern.
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