Engulfing Pattern

Although the dark cloud cover appears to have a strong layout, it is not necessarily going to cover the entire positive candlestick. An engulfing pattern is another story.

1. The stock has to be in a bearish or bullish pattern at the start.
2. The last stick before the reversal pattern begins should be small in size.
3. The next stick going in the opposite direction will have an open and close that is much larger in size than what the prior stick had.

What this shows is that the reversal is occurring in a dramatic fashion. The stock might have gone with the original trend at the start, but it will then go in the opposite direction and move much further that way than it had in the past. The important thing is that the opposite trend will be strong at this point. You can plan your strategy to move into the position that the stock will head into midway during the engulfing pattern. Wait for the final bar to fully engulf the one that came before it before you enter a position. Waiting until then ensures you know what is happening with the stock and that you have a plan for moving forward with it.