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Abandoned Baby
Advance Block
Belt Hold
Breakaway
Dark Cloud Cover
Deliberation
Doji Star
Dragonfly Doji
Downside Gap Three Methods
Downside Tasuki Gap
Engulfing
Evening Doji Star
Evening Star
Falling Three Methods
Gravestone Doji
Hanging Man
Harami
Harami Cross
Identical Three Crows
In Neck
Kicking
Meeting Lines
On Neck
Separating Lines
Shooting Star
Side By Side White Lines
Three Black Crows
Three Inside Down
Three Line Strike
Three Outside Down
Thrusting
Tri Star
Two Crows
Upside Gap Two Crows

Engulfing
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Pattern: reversal
Reliability: moderate

Identification
A white day is then completely “engulfed” by a large black day which gaps above the white day's high and closes below its low.

The Psychology
In an uptrend or within a bounce of a downtrend, the gap up may be the blow out that causes the shorts to throw in the towel and cover. Meanwhile the smart money is selling and getting short and the selling activity is so intense, the stock closes below the previous day's low. The bullish Engulfing pattern is very common…literally dozens occur every day and many are just incidental. Watch volume for confirmation.

The bearish Engulfing is similar to the bearish Dark Cloud Cover and could be the beginning of the Three Outside Down.



Like many reversal patterns, the bearish Engulfing pattern is better played at resistance rather than blindly in an uptrend. In the chart above, HL tried hard to move up but the 7 area was too much to handle. Twice the stock formed a bearish Engulfing candle, and the second one officially ended the consolidation pattern and began the move down.



NKE formed a bearish Engulfing pattern at an area of a previous resistance point. The stock then broke support to confirm the reversal. You can't expect all trades to work this well; but you can enter and keep a reasonable stop in place while letting the stock run its course.



DRD formed a bearish Engulfing pattern and broke support on the same day…a nice one-two punch.


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