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Engulfing patterns indicate strong market sentiment from "summary" of Japanese Candlestick Charting Techniques by Steve Nison
Engulfing patterns are two-candlestick reversal patterns that can provide valuable information about market sentiment. These patterns consist of two candles, where the body of the second candle completely engulfs the body of the first candle. The first candle can be of any color, but it is typically a small-bodied candle. The second candle, on the other hand, is usually a large-bodied candle that completely engulfs the first candle. The significance of engulfing patterns lies in the message they convey about market sentiment. When an engulfing pattern forms, it indicates a shift in the balance of power between buyers and sellers. In the case of a bullish engulfing pattern, the second candle's large body suggests that buyers have taken control and are exerting strong pressure on the market. This can be a signal that a bullish trend is about to emerge or that the current downtrend may be coming to an end. Conversely, a bearish engulfing pattern can signal that sellers have taken the upper hand and are driving prices lower. The large body of the second candle in a bearish engulfing pattern reflects the strong selling pressure in the market. This can indicate a potential reversal from an uptrend to a downtrend or a continuation of the existing downtrend. Engulfing patterns are particularly powerful when they occur at key levels of support or resistance. When an engulfing pattern forms at a support level, it can indicate a strong buying opportunity as buyers step in to push prices higher. On the other hand, a bearish engulfing pattern at a resistance level can suggest a good entry point for short trades as sellers take control and drive prices lower.- Engulfing patterns are valuable tools for traders and analysts as they provide clear signals about shifts in market sentiment. By understanding the message conveyed by engulfing patterns, traders can make more informed decisions about their trading strategies and positions in the market.
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