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Tuesday, May 8, 2007

Pattern & Entry Signal

I'm saying to do proper candlestick analysis you must wait for the price action to confirm via an Entry Signal. Thus, there are two signals..
One called a Pattern Signal and the other called an Entry Signal.
Simply, if the entry signal doesn't get confirmed...
The Pattern Signal didn't fail nor wasn't tradable.

The trading day after the Engulfing...presented a better entry price at a lower price in comparison to the close of the Bullish Engulfing.
With that said...Bullish Engulfing or any type of Bullish candlestick pattern implies there's a good chance for a bullish price reaction soon after the bullish candlestick pattern.
That bullish price reaction can occur anytime among the few trading day's after the bullish candlestick pattern. It does not imply the day after a bullish engulfing it will be a white candlestick with a higher close (breakout) although we would all like for such to occur.
Yet, the odds aren't very good that particular scenario (white candlestick with higher close) will occur.

That takes me back to the Pattern Signal and Entry Signal methodology...Waiting and looking for a bullish reaction to the bullish candlestick pattern in the first few trading day's soon after the bullish candlestick pattern.

However, I personally prefer to see it occur in only the first day after the pattern signal. Therefore, if a bullish reaction doesn't occur...Then the pattern signal wasn't tradable.

Last of all, a bullish engulfing although a bullish reversal signal...

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