Forex Trading – Engulfing Pattern

May 12, 2013


Engulfing Pattern

Learning about numerous candle line patterns such as the engulfing pattern would be the fundamentals of any credible Forex Trading training. Within this article we’re going to talk about the characteristics from the engulfing pattern and when it may be utilized in your Forex trading.

The Bullish Engulfing Pattern

The engulfing patterns comes in two formats bullish and bearish. When the marketplace is falling, we are looking for the bullish engulfing pattern to act as a reversal pattern. To be able to qualify, the last candle has to engulf the prior black candle’s real body. In simple terms, this means that regardless of 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

The bearish engulfing pattern works in a comparable way but on the opposite end of the scale. In an up-trend a black real body  is needed 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 because of selling pressure.

Forex Trading Formation

While studying this formation in your Forex trading course make certain that you write down a set of specific guidelines that apply to the engulfing pattern. Once written, follow them and don’t accept patterns that are not inside a formation you’re familiar with. For example, inside your notes and chart analysis you have to 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 brief or lengthy the trend is; it only matters that it’s a trend.

The second real body in the formation also has to engulf the prior real body. There’s no option to this rule. In this instance the shadows are irrelevant and also the second candle does not need to ‘hug’ them. The focus is purely around the real bodies. This implies that inside 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 is required to be above the prior session’s close and also the close is needed to be below the prior session’s open.

Factors Of Engulfing Pattern Which Should Be Considered

So, now that we know the traits 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 ought to be a healthy and large real body that signifies the power from the opposing side. Also, the engulfing pattern should be considered in your Forex trading strategy when it appears at the end of a quick or a long trend. As soon as these kinds of trends appear the market is telling us that it’s overbought or oversold. If this is the case the chances of the market reversing improve substantially. Lastly, the volume in the second session’s candle is amongst the most important factors. Regardless of the second candle engulfing the prior candle, a lack of volume might imply that there is not sufficient gas in the tank. Nevertheless, large volume in the engulfing candle’s session means that the energy levels are high and also the market is much more prone to a reversal.

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