Definition - If a black body exists, this pattern will see a larger white body engulf the candlestick during a downtrend. Although the shadows do not have to be engulfed, the body itself will be engulfed which is then a bottom reversal signal.
- On the first day, there has to be a black body.
- Also, a prevailing downtrend must exist.
- Finally, the second day sees a white body that completely engulfs the prior black body.
Patterns and Flexibility
Although the size of the first black body is not important, the second candlestick has to be normal or long. For it to engulf successfully, the white body must be larger than the black body and the body tops or bottoms could be seen at the same level of the two candlesticks.
Behaviour of Trader
After the black body on the first day, there will be a lower volume of selling during the downtrend. Opening on the second day, new lows are seen and all signs point towards bearish trading. However, the bulls soon take the lead as the day progresses and the pressure becomes too much for the sellers so the market closes higher than the opening of the previous day. With this in mind, the downtrend becomes damaged.
Buy/Stop Loss Levels
For there to be confirmation, the price will have to cross above the level of the last close which is used as the confirmation level. In terms of the stop loss level, this is regarded as the last low. If prices fall and see two days of lows below the stop loss level itself following the buy, the stop loss will be triggered if no bearish pattern can be detected.