ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Identify bullish reversal pattern and bearish reversal pattern through engulfing

Updated on November 8, 2011

Identify reversal pattern through engulfing

As mentioned in my previous hub of candlestick pattern as charting tools for stock investment, there are 12 major candlestick patterns that a stock trader should know in order to trade well using technical analysis. In previous hub, I already introduced Doji candlestick patterns variation and hammer candlestick patterns variation. I also shown examples on how to use doji candlestick variation and hammer candlestick variation to identify potential bullish reversal and bearish reversal. For this hub, I will be sharing about one of the most important candlestick patterns, which is engulfing pattern. I will be covering bullish engulfing pattern as well as bearish engulfing pattern with real stock example.

Bullish Engulfing pattern:

This is one of the most important candlestick patterns as it is indicating almost the end of substantial downtrend of a stock. It is also indicating a complete change in the sentiments of the stock and leaning towards bullish side. Most of the time, it will be accompanied by high volume as well. Once spotted, traders will need to monitor very well the next day trading price action as most likely the price will go up. To identify bullish engulfing pattern, below criteria applied:

a.) Consist of two day candlestick with second day body engulf the first day body completely

b.) Both the top and the bottom of the candlestick must not be equal

c.) First day candlestick body must be black color while the second candlestick must be white color

d.) Must be occurred after stock had been in downtrend for sometimes

Below example is showing how significant it is to spot the occurrence of bullish engulfing as bullish reversal pattern.


Let us look at The Babcock and Wilcox Co. (BWC) listed in NYSE in August 2010 as example. After listing, the price started to go downtrend until 6 Oct 2010 where we spotted bullish engulfing. The next day, price started to show uptrend and the uptrend was continued from USD 21.24 until USD 35.60 before bear took the action. Imagine a trader who bought BWC at USD23, that was a few days after spotted bullish engulfing, he would had made more than 50% profit. A trader who is able to spot bullish engulfing will definitely have an advantage in stock trading.

Bearish Engulfing pattern:

Similar to bullish engulfing pattern, this candlestick pattern is also indicating complete change of sentiment, but only on the reverse side. Most of the time, it will be accompanied by high volume as well. When bearish engulfing occurred, price will normally begin with higher price. Due to selling pressure was too intense, the stock unable to sustain, thus plunged down. This will formed a long body black candlestick. To summarize, below criteria is applied in identifying bearish engulfing pattern:

a.) Consist of two day candlestick with second day body engulf the first day body completely

b.) Both the top and the bottom of the candlestick must not be equal

c.) First day candlestick body must be white color while the second candlestick must be black color

d.) Must be occurred after stock had been in uptrend for sometimes

Below example is showing how bearish engulfing can be used to spot the bearish reversal pattern.


Let us look at Burlinton Northern Santa Fe Corp as the example. After price had been in uptrend from 13 August 2008, bearish engulfing pattern was spotted on 2 September 2008. The next day, price started to move downwards and the down trend continued from USD105 until USD71. A trader will lost around 30% of invested money if he was not aware of the bearish engulfing pattern.

Summary

From 2 examples above, it is observed that how we can actually utilizing bullish engulfing pattern and bearish engulfing pattern in order to predict potential price movement. Knowing how to spot engulfing pattern will be able to give any trader substantial advantages in dealing with stock investment.

Disclaimer

The content of this hub is purely for educational purpose only and cannot be taken as an advisory service or market prediction. There are a lot of factors impacting whether the stock price will go up or down.


Comments

    0 of 8192 characters used
    Post Comment

    • henrygogoals profile image

      henrygogoals 

      7 years ago from Singapare

      Patterns are always right, but the future are not always right.

      Share marketing is reflect of confidence at that time.

      When the confidence is lost, the market crash.

      When the confidence is over, the market raise.

    • profile image

      tanfung 

      7 years ago

      Thanks for sharing these technical info.

    • idex231 profile image

      idex231 

      7 years ago from MY

      Something new for me. Thanks for sharing!!

    • bjtutu profile imageAUTHOR

      bjtutu 

      7 years ago from Malaysia

      What i had shared is just part of the technical analysis. In fact the 2 hubs that written regarding 4 candlestick patterns are just considered tip of the iceberg. There are whole bunch of parameter to be taken care of when dealing with technical analysis. Sharing is caring. Do share the knowledge through hubpages. I might be learning some new tricks form you guys.

    • profile image

      ghiblipg 

      7 years ago

      good sharing...planned a few topics on technical analysis as well. Let's see if I able to get that out this weekend =)

    • My Footprints profile image

      My Footprints 

      7 years ago from MY

      Interesting hub. Trend is just one of the many factors one need to consider. Most layman would just go with the market forces and friend's recommendations.

    • profile image

      William 

      7 years ago

      Good Sharing. thanks.

    • bjtutu profile imageAUTHOR

      bjtutu 

      7 years ago from Malaysia

      Thanks klyyong. Hope the hub is helpful to all.

    • klyyong profile image

      klyyong 

      7 years ago

      Knowing the trend will definitely help us in decision making at the stock market. Good hub,thanks.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)