Guest Post: Bullish and Bearish Engulfing Patterns in the Forex
The forex market has the great advantage of being always open, but this also makes the definition of reliable price patterns that may allow the trader to set appropriate operational strategies very complicated.
The technique of the Japanese Candlestick was born on the commodities market, but in recent decades it has had a wide spread in the forex market. The main reason is the easy to read graphics offered by the Japanese candlesticks figures, as the pattern can indicate the trader the mood of the market and the possible turning points.
Simply observing the body color of a candle or the length of its shadows, an European trader will be able to understand what happened during the night on the Japanese market, planning his job to set an adequate trading strategy. Traders operating on the forex often prefer to use 240 or 480 minutes candles, to break the sessions into 3. The first one is concerning the Asian market, the second one about Europe, and the lasts one is the American one.
Among the most widely used by traders and Asian IB brokers such as JunoMarkets candlesticks, a great importance can be attributed to the bearish / bullish engulfing pattern, thanks to its ability to anticipate the trend reversal.
The technique of the Japanese Candlestick was born on the commodities market, but in recent decades it has had a wide spread in the forex market. The main reason is the easy to read graphics offered by the Japanese candlesticks figures, as the pattern can indicate the trader the mood of the market and the possible turning points.
Simply observing the body color of a candle or the length of its shadows, an European trader will be able to understand what happened during the night on the Japanese market, planning his job to set an adequate trading strategy. Traders operating on the forex often prefer to use 240 or 480 minutes candles, to break the sessions into 3. The first one is concerning the Asian market, the second one about Europe, and the lasts one is the American one.
Among the most widely used by traders and Asian IB brokers such as JunoMarkets candlesticks, a great importance can be attributed to the bearish / bullish engulfing pattern, thanks to its ability to anticipate the trend reversal.
The only distinction between the two figures is linked to the subsequent expectations of the figure formalization: bullish in case of a bullish white candle, bearish in case of a bearish black candle.
Let’s now analyze the bullish engulfing pattern.
This figure, formalized on any market as the forex, commodity, equity or bond one, typically appears at the end of a correction or a downtrend.
The market falls down forming a sequence of black candles, then suddenly develops a white candle with a body that envelops the previous black one. The body of the bullish engulfing opens under the previous closure of the black body and closes above the earlier opening. The Japanese ascribe this figure a clear signal of the strength of buyers who reappear on the market with the intention of at least stopping the decline.
At that point, the forex trader sets the low of the session in which the bullish engulfing pattern occurred as a key support for the future (or stop loss).
The opposite of this bullish figure is the bearish engulfing pattern with a bearish black candle that darkens and wraps the previous white bullish candle. Even in this case the body opens above the closure of the previous white candle, and closes under the previous opening.
In different markets from forex, it is important to note the volumes recorded on these occasions: the more volumes are higher, the more the reversal figure will be significant.
A final note concerns the practical application of this figure on the forex. As the currency market never closes, it is not possible to draw figures with different daily openings respect to the closing ones, because the negotiation is continuous and the forex market is very liquid. A much more significant impact on the forex comes from the weekly bars, with a discontinuity on the Monday opening with respect to the Friday closure.
Whatever the temporal time frame is, however, these figures are widely used even on the forex market because of their ability to provide an immediate graphical read of the current strength at a given time in the market.
This figure, formalized on any market as the forex, commodity, equity or bond one, typically appears at the end of a correction or a downtrend.
The market falls down forming a sequence of black candles, then suddenly develops a white candle with a body that envelops the previous black one. The body of the bullish engulfing opens under the previous closure of the black body and closes above the earlier opening. The Japanese ascribe this figure a clear signal of the strength of buyers who reappear on the market with the intention of at least stopping the decline.
At that point, the forex trader sets the low of the session in which the bullish engulfing pattern occurred as a key support for the future (or stop loss).
The opposite of this bullish figure is the bearish engulfing pattern with a bearish black candle that darkens and wraps the previous white bullish candle. Even in this case the body opens above the closure of the previous white candle, and closes under the previous opening.
In different markets from forex, it is important to note the volumes recorded on these occasions: the more volumes are higher, the more the reversal figure will be significant.
A final note concerns the practical application of this figure on the forex. As the currency market never closes, it is not possible to draw figures with different daily openings respect to the closing ones, because the negotiation is continuous and the forex market is very liquid. A much more significant impact on the forex comes from the weekly bars, with a discontinuity on the Monday opening with respect to the Friday closure.
Whatever the temporal time frame is, however, these figures are widely used even on the forex market because of their ability to provide an immediate graphical read of the current strength at a given time in the market.
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