Reversal Engulfing Patterns
What is an engulfing pattern? Here is a example chart of a bearish engulfing pattern
which is similar to what we saw in the OTC issues this past week (look at the NDX and the SMH for clear cut examples on 05/07/2009).
What are the rules regarding engulfing patterns and what are the implications?
Engulfing patterns can be either bullish or bearish. There are certain rules that apply to them and interpreting candles, I turn to the most comprehensive source on candlestick charting - Steve Nison to supply the rules and implications
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Identification Rules
From Steve Nissan's, Japanese Candlestick Charting Techniques, Second Edition, New York Institute of Finance, 2001.
Factors Increasing Probabilities
Some factors increasing the likelihood that an engulfing pattern could be an important turning signal are:
What Signals a Failure?
So now that we know what an engulfing pattern is and what increases the probablities of a success in the pattern, what indicates the pattern has failed?
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