Japanese candlesticks - Engulfing lines

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Bullish engulfing



Definition
: Bullish engulfing lines is a structure made up of two Japanese candlesticks. The first is a small bearish candlestick (red) followed by a large bullish candlestick (green). The second candlestick opens in a bearish gap but its closing is above the first candlestick’s opening level. Therefore, the large candlestick incorporates the first, which is what forms the bullish engulfing lines.

Illustration:

Bullish engulfing
Characteristic: The bullish engulfing lines’ structure is often formed after a significant drop characterized by several large red Japanese candlesticks.

Significance: Bullish engulfing lines is a reversal pattern, it indicates a bullish trend reversal. This reflects a loss of momentum among sellers and a support level strongly defended by buyers.

Note: Bullish engulfing lines have to occur with high volumes, this indicates a real desire for a reversal and not simply sellers taking profits.

Invalidation
: If the next candlestick is not bullish or a bullish gap has not occurred, the bullish engulfing lines pattern is invalidated.

Bearish engulfing



Definition: Bearish engulfing lines is a structure made up of two Japanese candlesticks. The first is a small bullish candlestick (green) followed by a large bearish candlestick (red). The second candlestick opens in a bullish gap but its closing is below the first candlestick’s opening level. Therefore, the large candlestick incorporates the first, which is what forms the bearish engulfing lines.

Illustration:

Bearish engulfing
Characteristic: The bearish engulfing lines’ structure is often formed after a significant increase characterized by several large green Japanese candlesticks.

Significance: Bearish engulfing lines is a reversal pattern, it indicates a reversal of the bearish trend. This reflects a slowdown in the pace of buyers and a resistance level strongly defended by sellers.

Note: Bearish engulfing lines have to occur with high volumes, this indicates a real desire for a reversal and not simply buyers taking profits.

Invalidation: If the next candlestick is not bearish or a bearish gap has not occurred, the bearish engulfing lines pattern is invalidated.

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