There are situations when you don’t want to enter the market at the price it offers you.
How to find a really strong bearish engulfing pattern
In our previous articles, we discussed reversal candlestick patterns. You might remember a bearish engulfing pattern, in which the second candle engulfs the whole body of the first candlestick. This patterns form on the bullish market and signal the upcoming price reversal to the downside. In this article, we will learn how to recognize strong bearish engulfing patterns (which indicate real short trade setups) and single them out from the weaker ones. There are some features of the strong engulfing patterns:
• The second candlestick is the most important part of the pattern. It should be long enough to engulf the first candle completely. If the first candlestick is not very big, you should pay attention to the range of the previous candlesticks (at least 2 previous ones); their bodies and wicks should be engulfed completely by the candlestick you are focusing on (the second one). If this requirement is satisfied, the bearish engulfing pattern is rather strong. But to make sure that you chose a real engulfing pattern, you should meet two other requirements.
• The first and second candlesticks should go beyond the upper boundary of the Bollinger band indicator.
• The bearish engulfing pattern shouldn’t be formed at the very peak of the long-term uptrend because the formation of strong engulfing pattern could signify the bulls’ exhaustion, not a trend reversal. Once your pattern satisfies all these requirements, you may be sure that you found a really strong reversal pattern that can be used as a short trade setup.
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