• Skip to primary navigation
  • Skip to content
  • Skip to footer
Daniels Trading

Trade Futures, Spreads and Options with Confidence.

Top Navigation

  • Open a Futures Account
  • Sign Up
  • Log in
  • 1.800.800.3840

Primary Navigation Menu

  • About
    • Who We Are
    • Services
    • Risk Disclosure
    • COVID-19
  • Trade
    • Broker-Assisted
    • Self-Directed / Online
    • Request Pricing
  • Hedge
    • Ag Marketing Plan
    • WASDE Analysis
    • Grain Resources
    • Livestock / Dairy Resources
    • Request Pricing
  • Invest
    • Automated Strategies
    • Managed Futures
    • Request Pricing
  • Advisories
    • GENERAL / FUNDAMENTAL
      • DT Newsletter
      • Insider Market Advisory
      • Turner’s Take Newsletter & Podcast
    • TECHNICAL ANALYSIS
      • The Cullen Outlook
      • Data Feed Trade
      • Jarboe Trading Journal
      • Trade Spotlight
    • AG MARKETING
      • Cattleman’s Advisory
      • Technical Ag Knowledge
      • Turner’s Take Ag Marketing
    • THIRD-PARTY RESOURCES
      • CFRN
      • Moore Research Center, Inc. (MRCI)
      • OptionWorks®
      • TASMarketProfile.com
  • Education
    • CME Group Resource Center
    • CME Group Offers
    • Small Exchange Resources
    • Guides
    • Frequently Asked Questions
    • Order Entry Handbook
  • Blog
    • Futures 101
    • Ag Marketing
    • Tips & Strategies
    • Trading Advisories
  • Resources
    • Trading Software
    • Quotes and Charts
    • Futures Calendars
    • Contract Specifications
    • Margin Requirements
    • Futures Calculator
  • Accounts
    • Apply
    • Access My Account
    • Funding
  • Contact
 

Bullish Engulfing Pattern Defines Market Direction

October 11, 2012 by Burton Schlichter| Tips & Strategies

Written by DeWayne Reeves of CFRN.net. Burton Schlichter is a partner and featured broker at CFRN.net.

One of the easiest candlestick signals to spot besides our consummate favorite the Doji, is the Bullish Engulfing Pattern. This is one of the 12 primary signals taught to me by candlestick mentor, Steve Bigelow.

A candlestick purist might debate whether or not the example I will show you on the chart below truly qualifies. The issue would be in the wicks. The point I need to make is that when trading E-mini Futures intraday, it is extremely difficult to obtain the pure textbook definition of Bullish Engulfing as it might apply on a Daily Chart where the overnight Globex session is not taken into consideration.

Bullish Engulfing Pattern

Bullish Engulfing Pattern: This is a powerful 2 candle pattern. The first candle is a narrow range candle that closes down for whatever time period is being observed from a 1 minute chart to a weekly, monthly, or even quarterly time frame. The sellers are in control based on the context of the downtrend. We have a narrow range bearish candle and volatility is low. The sellers appear to have lost their momentum. The second candle is a wide range bullish candle that “engulfs” the body of the first candle and closes near the top of the range. The buyers have overwhelmed the sellers as demand is now greater than supply. Buyers are now in control!

Due to the tremendous liquidity of the S&P 500 Emini Futures it is rare to see a gap intraday no matter what time frame you are observing from 1 minute all the way up to 1 hour. As you can see in the diagram above, after the close of the bearish candle the following candle opened lower than the close of the bear candle. Not uncommon with stocks on a daily chart but far less likely to happen in a Globex based futures environment. The example on the chart below is about as good as you will find but as you will see, it’s good enough because the principles play out just the same.

I did mention in last night’s post that I expected the 1444/1445 Weekly Trading Zone to be revisited based on how easily price slipped it through it on Monday. Not only was it revisited, the market spent 6 hours consolidating in and around the Zone. It’s not magic, it’s just market behavior that we see repeated again and again. Even if we can’t explain it, through the simple power of observation we can profit from it.

(ES) S&P 500 E-Mini Futures Hourly Chart

S&P Emini Futures Hourly Chart

Notice that after proper consolidation occurred at the 1444/1445 Weekly Zone, price returned to the 1435/1436 Weekly Zone which has thus far been the low of the week since Monday’s open. We will observe this pattern carefully and see where it leads us over the next few days. The first hourly candle after the Bullish Engulfing Pattern was good for a 5.75 point rally. Based on the ATR (average true range) of many days recently, that’s more than a decent move. At the end of the daily broadcast I drew the trend line in to show you exactly where price needed to break to set the trade in motion.

For those of you who enjoy “The Secret Life of Candlesticks”© as much as I do, you’ll be excited to know that I’ve invited Steve to do a webinar with us in the near future and to also visit us regularly on the radio program. Steve was one of the very first guests on CFRN way back in 2006 and we look forward to spending time with him again.

Filed Under: Tips & Strategies

About Burton Schlichter

Burton R. Schlichter is a Senior Market Strategist with Daniels Trading in Chicago. He draws from 20 years of trading experience and uses technical analysis as his basis for making trading decisions. He's been featured in Reuters, Marketwatch, WSJ, BBC, Fox News, and other media outlets. Mr. Schlichter now authors a newsletter called "Capture the Move" exclusive to Daniels Trading clients which offers specific trade recommendations, strategies and commentary on various markets.

Subscribe To The Blog

Footer

Site Navigation

  • Frequently Asked Questions
  • About Us
  • Customer Reviews
  • Contact Us
  • Futures Blog
  • Open a Futures Trading Account
  • Media Resources
  • Fund Your Account
  • Legal Notices

Contact Us

StoneX Financial Inc.
Daniels Trading Division
230 South LaSalle Suite 10-500
Chicago, IL 60604
+1.312.706.7600 Local / Int'l
+1.800.800.3840 Toll-Free
+1.312.706.7605 Fax

Connect with Us

Trustpilot
Risk Disclosure
  • Risk Disclosure
  • Privacy Policy
  • California Residents Privacy Notice
  • Terms of Use
  • Back to top
 

Loading Comments...
 

You must be logged in to post a comment.