Candlestick patterns are very important for every trader as they use them to help predict the direction in which an asset’s price will move. This tutorial will focus on engulfing candlesticks, one of the most important candlestick pattern in binary options.
CANDLESTICKS PATTERNS: WHAT ARE ENGULFING CANDLESTICKS
The engulfing candle is often a good indicator of a mood change in the market. It is a pattern of a small candle followed by a very big body of an opposite color hence giving its name engulfing.
This typically occurs where assets are either being overbought or oversold and thus are vulnerable to price reversals.
Of course, there are two types of engulfing candlestick, bullish and bearish.
Bullish engulfing candlesticks are typically found at the bottom of a trend and indicate a reversal where the asset is about to move back up. Bearish engulfing candlesticks are found at the top of a trend and indicate an imminent reversal where the asset’s value is due to head back down.
Engulfing candlesticks are chart patterns of the market where the previous day candlestick is a small one with tails on both ends. The body is small. This is followed by a large candlestick. The body of the large candle stick covers the candle stick of the previous day including the body and tails on both ends. This produces an image of being engulfed, hence the name engulfing candlesticks.
In order for a group of candles to be considered an engulfing pattern, the following criteria should be met:
- market has to be in an uptrend (for a bearish engulfing to appear) or in a downtrend ( for a bullish engulfing to appear);
- out of the two candles that make the engulfing pattern, the second candle’s real body must engulf the previous one’s body;
Bullish engulfing candlestick binary options example
- You notice that the value of an asset was continually decreasing for the past few days (or hours) – Now you notice that the newest candle is a green candlestick that is larger on the upper side than the preceding red candlestick.
Now, you will highly likely know that the following will happen:
- The value of the asset will most likely begin to increase in the future.
Bearish engulfing candlestick binary options example
- The value of an asset was continually increasing the past few days (or hours) – Now you notice that the latest candlestick is a red one and its lower side is much larger than the lower side of the green one
In this situation you conclude the following:
- The value of the asset will most likely decrease in the future and will keep decreasing for a while.