This Week's Nison Lesson(the jap school): The Popular Bullish Engulfing Pattern

[Scubawarrior]

   We know that single candle lines such as hammers, shooting stars, doji reveal imbalances between the bulls and bears. The Japanese(the old school) say:

                "The power of the market is reflected in a single candlestick line, or a group of candlesticks."


   The market falls and a black candle forms. Next, a candle line develops with a white real body that wraps around the prior session's black real body. The name for this pattern is based on the fact the white candle "engulfs" the black candle. As the white real body opens under the prior black real body's close, and closes above that session's open, it shows buying pressure has overpowered selling pressure, i.e, the bulls have taken charge! If the market is solid, the lows of the bullish engulfing pattern should be support. Thus, for those who are long based on this pattern, there should be a stop under the lows of this pattern. Note the white candle need not wrap around the shadows of the prior session- it just needs to wrap around the prior black real body. Ideally the black real body should be small in comparison to the white real body.


As shown on the chart below, a classic bullish engulfing pattern signaled the major low in IBM in October 2002 from where it almost doubled. And it is not surprising this was such an important low since it also confirmed the support level set by a hammer (to refresh your memory a hammer is a candle with a very long lower shadow and small real body near the top of the session's trading range).

                                                                                                                         by Steve Nison

   Fica mais um ensinamento do grande mestre,

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