Engulfing Pattern
Among two-session indicators, the engulfing pattern is one of the strongest. It is found often in charts and when confirmed, it is a valuable and strong reversal signal. The bullish version consists of a black session followed by a longer white session. The real body of the second session extends both higher and lower than the preceding black session (engulfing it). An example of the bullish engulfing pattern is shown in Figure 5.16.
Figure 5.16 Engulfing pattern (Chart courtesy of StockCharts.com)
Notice how price gaps strongly upward right after the engulfing appears. This sets up a strong rally that returns price into the ...
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