This simple chart pattern forms the basis for a simple “system” for recognizing trend initiation – system is probably too strong, more a rule-of-thumb….

Bearish - a chart pattern that consists of a small open/white candlestick with short shadows is followed by a large black candlestick that engulfs the previous, open and close are greater/lower than the total body of the previous candlestick – (and the converse for a bullish engulfing pattern) – see also harami crosses for the opposite of this pattern.

Entry: an engulfing pattern has formed…
Exit rules: stop-loss 3-5 ticks above the absolute high/low of the previous candlestick.
take-profit stop twice the distance of the stop-loss (risk-reward 2:1).

In general, this is felt to work better on a short timescale – 5, 15-min charts – ie. getting towards scalping to some points of view… And it’s vital to consider previous trend, performance etc.

My own view is that this is barely above the obvious…