Engulfing candlestick pattern is a double stick pattern. Double stick candlestick patterns do not appear frequently but when they do appear, it can mean a trend reversal is about to take place. Spotting a trend reversal before it happens is something that can be highly profitable in trading.

Double candlestick patterns are more complex than single candlestick patterns. You have to wait for two days for the pattern to shape up. It happens most of the time that you spot a double candlestick pattern developing on the first day but when you follow it the next day, you get disappointed as the pattern fizzles out.

Nevertheless, these double stick candlestick patterns do occur and if spotted correctly can be highly profitable. One of the most popular double candlestick patterns is the Engulfing Pattern. This pattern signals the end of the existing trend and the beginning of a new trend. There are two type of Engulfing Patterns, bullish and bearish.

A Bullish Engulfing Candlestick Pattern has a candle on the second day that completely covers the first day bullish candle. The open on the second day candle is lower than the open on the first day.

Remember, a bullish engulfing candlestick pattern has to appear in a downtrend to be meaningful. But when this appears, it means that bulls will soon take control of the market and overcome the bears. What this means is that bears are still in control of the market. When the bulls get into action, so much buying takes place that opena and high of the previous day both are surpassed.

When a Bearish Candlestick Pattern appears bears get into action. This pattern has to appear in an uptrend in order to be meaningful. Short sellers think that the prices have gone too high and start massive selling in order to take profit and exit before others also start selling.

A massive chain reaction starts in the market. Everyone wants to sell and sell quick. The second day bearish candle covers the first day bullish candle meaning that bears have taken hold of the market and uptrend is reversing itself.

Now, the most important thing for any trader is where to place the stop loss. In case of a bullish engulfing candlestick pattern, place ths top loss on the low of the first day to be on the safe side. And in case of a bearish engulfing pattern, place the stop loss near the open of the second or signal day. This way even if the pattern is not confirmed with the subsequent price action, you are on the safe side. Happy trading!

Mr. Ahmad Hassam has done Masters from Harvard University. Get your FREE COPIES of the HVMM Ultimate Day Trading System and the Universal Risk & Money Management Tool just now! Read the story of Richard Samuels, a post office mailman with a head injury and how he made a fortune with these Neutrino Forex Signals .

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