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How we use the Engulfing pattern

Engulfing patterns provide strong signals on the daily charts, particularly when combined with their interactions with other indicators such as moving averages. This is seen very clearly in the example below with Marvel Technologies (MRVL). Note the strong +BE engulfs several preceding days while bouncing of the moving average.

MRVL 05/07/05 (Circled) Daily chart.

However to get in sync with market action we regularly study charts over different time frames. The lower time frames can often signal moves unseen or before they occur on the higher times. For this reason we often study the 15 minute, 60 minute and Daily charts of a stock in parallel to see what patterns are developing.

For example in AAPL (15 minute chart) below we note a +BE formation on the open with good volume. The prior trend was clearly negative, meaning the candlestick has something meaningful to reverse. The candlestick opened at 45.26 and closed at 45.46, engulfing multiple candlesticks

AAPL 29/08/05 15 min chart.

When we flip to the 60 min chart we notice that the 15 minute pattern has continued to create a +BE on the higher timeframe. The candlestick opened at 45.26 and closed at 45.83, again engulfing multiple candlesticks

AAPL 29/08/05 60 min chart.

When you look at the daily picture you could easily dismiss the day’s action not revealing much on its own. However, if you’d have entered intraday based on the information from the various time frames you could have set yourself up with a nice swing trade from around $46 to around $50

AAPL 29/08/05 (Circled) Daily chart.