Rarely Taught Japanese Candlestick Pattern
Trading stock market strategies with a specific Japanese Candlestick Pattern can be very profitable. Candlestick patterns should never be traded by themselves, but they can be one important component of a stock market trading strategy.
Today you’ll learn a variation on a Japanese candlestick pattern called the “engulfing bars.” It’s one of the most well-known candlesticks, but you’re going to learn a new twist on it you can apply to stocks, futures, E-minis and Forex.
This variation works equally well for day trading and swing trading.
Enjoy the video and please leave your comments below.
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Welcome to this video. This is doctor Barry Burns and today I am going to show you stock market strategies that’s round the Japanese candlestick patterns. This one is kind of unusual. I haven’t seen a lot of people teach this. So hang on to your belts, fasten your seatbelts and here we go.
So a basic candlestick pattern that is often taught is the engulfing bars. Engulfing bars are a pretty simple concept. We have got a pattern here, and it’s a two bar pattern. And that is where this bar, the red bar engulfs the bar before it. So it’s generally a 2 bar pattern. It must be taken into context of the entire chart and so forth. But basically what’s going on here is you’ve got the low of this bar. They are about equal lows. And then this bar has little higher high than the previous bar. But to me, the way I do it, and I do things a little heterodox sometimes.
THE MOST IMPORTANT ASPECT OF THISÂ JAPANESE CANDLESTICK PATTERN
For me the most important part of a Japanese candlestick pattern are the real bodies. That means the colored portion. So this is the open and that’s the close. And that’s on a green bar so we get a green bar that closes above the open. And the red bar, the open is above the close.
What’s happening is you’ve got energy that’s basically coming up. And then the very next bar, that energy completely reverses and the significant thing is that the second bar completely engulfs the bar before it. So if you mark it highs and your lows, this bar is inside of that bar. So that means that this bar is very strong.
It’s really complete reversal of the energy of the bar that came right before it. Okay thatâ€™s your typical engulfing bar pattern. Some people now use little variations with the highs and the lows or put more emphasis on the real bodies and put more emphasis on the real bodies as I said.
AN IMPORTANT VARIATION ON THE ENGULFING CANDLESTICK PATTERN
Now that’s the basic pattern, let me show you the variation that I want to share with you today. The variation is when we have multiple bars being engulfed, instead of just 1 bar being engulfed. Let’s look at this bar right here. That’s the red bar. If you go and you look, you could see that’s the real body. Not the high but the real body. Now again thatâ€™s the red section of the candlestick, engulfs the bar before it. But look at this …
… it also engulfs the bar before that, and the bar before that, and the bar before that. So that’s the point today, is that this is engulfing 1 2 3 4 bars before it. And thatâ€™s the pattern that we are looking for. Multi bar engulfment. Multi bar engulfment as opposed to just a one bar engulfment.
WHAT’S IT ALL MEAN?
What this means is that the market has come up and then it’s gone sideways. It’s just hesitating here, we get even little dojiÂ bar there. Narrow range, real bodies, which again indicate neutrality, hesitation. And then this bar, still not wide range, and then this one finally, we are getting the market making commitments and we reject all that stuff. We are getting out of this little consolidation period now. And the selling is really picking up.
Another thing that’s important about this is not only that it engulfs the previous bars but that the engulfing bar is a rather wide range bar. This doesn’t work, and does not apply if all the bars are narrow range including the engulfing because that really doesn’t say that there is a lot of barrish or conversely bullish energy coming in on that bar.
Remember, there’s going to be a wide range, they are showing that there’s been a lot of, in this case selling and price movement to break out of. It’s kind of like breakout type action here. To break out of this narrow range. Alright, let’s look at a couple more examples.
Okay, so now here we have another one. This oneâ€™s very interesting because we actually get a regular two bar engulfing pattern right here. And thatâ€™s fine. Thatâ€™s not too bad. Might be little nerve racking because we just compared to move up there with the gap. But you know the gap does close. And that’s one thing that is common.
However the more interesting and more sophisticated pattern that we are looking at today is a multi-bar engulfing pattern. Look at this bar right here. That’s our next engulfing bar. Notice it does not occur on big volume. This bar occurred on big volume, and the price didn’t go anywhere. Those volume signals are not very reliable. So here is how this looks.
Again we are looking at the real bodies, and it engulfs the previous 1 2 3 4 bars on the chart. Again the point is we are looking at, primarily areas of price action that are at highs and lows and where the market has a bit of consolidation, where it’s just kind of going sideways.
You need a minimum of 2 bars obviously. But 3 4 5, heck I have seen them go 7 or 9 bars of and being engulfed by the final bar. We’re are looking for kind of neutral bar action, moving sideways, narrow range from high to low. Also narrow range between open and close. And then for one bar, to put it in a wide range, and have a big movement from the open to the close of that bar, and showing some directions, some real thirst, some real push, some real commitment in the direction of that Japanese candlestick pattern.
Don’t use this Japanese candlestick pattern in isolation. Use this with the rest of your trading methodology. But it’s really a powerful pattern. I trade these things all the time. And I have found them to be very very reliable.
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