| Engulfing |
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Pattern: reversal
Reliability: moderate
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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.
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