Bullish Reversal Patterns

A wide variety of two-day patterns signal the end of a downtrend and the beginning of an uptrend, and those patterns are the focus of this section. There’s an old saying in trading that “the trend is your friend.” It’s based on the idea that getting (and staying) on the right side of the trend is the best way to make a profit in the market. I don’t disagree with that sentiment, but plenty of traders make a good living catching changes in trend. It’s not the easiest type of trading, but it can be rewarding. This type of trading basically involves trying to pick a top or bottom of a trending move. Because this involves going against the current type of market and against the majority of participants, it’s a difficult process.

If your trading strategy is dependent on catching trend changes, make sure that you’re humble and quick to acknowledge when you’re wrong about a trade. Use orders that force you to take a small loss before you rack up big losses.

Throughout this section, I include patterns that work and ones that fail, and I point out where a trade starts to go wrong. In these examples, you can see how bad a trade can get if you don’t play it safe and take a small loss to prevent losing big.

Bullish engulfing pattern

The first two-stick pattern is the bullish engulfing pattern. The pattern’s name comes from the fact that the signal day engulfs ...

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