🐺 History is Cyclical - Particularly in the Market!

Hey there! My name is Nate and I write about trading for the WOLF Financial newsletter. If you are looking for more trading tips and tricks, I guarantee you’ll enjoy my content on 𝕏, @tradernatehere. Thanks for reading!

This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.

SPY has been powering higher and treating us all to a great first half of the year, so far. The chart has been beautiful for the most part.

But on Thursday a bearish engulfing pattern showed up, and it is eerily similar to the one we saw at the start of April.

The last time we saw this pattern it was followed by a couple of weeks of selling.

Do we see history repeat? If it does, the set up for a long trade would be present itself and I will be ready to jump on it.

If we get a small sell off again, it would potentially retest the prior highs from March and if support shows up it could provide a launching pad for the next leg higher.

To understand why I am looking for an opportunity at a lower price point, it is worth taking a closer look at the bearish engulfing pattern.

What is a Bearish Engulfing Candle?

A bearish engulfing candle is a chart pattern that consists of two candlesticks: a small bullish candle followed by a larger bearish candle.

The body of the bearish candle completely "engulfs" the body of the previous bullish candle.

This pattern typically occurs at the end of an uptrend and signals a potential reversal to the downside.

Why is it Important?

The bearish engulfing pattern is significant because it reflects a shift in market sentiment.

The bulls are losing control, and the bears are stepping in. This shift can lead to a potential downtrend, making it a valuable signal for traders.

How to Use Bearish Engulfing Candles in Trading

1. Spot the Pattern

Look for a smaller bullish candle followed by a larger bearish candle that completely engulfs the previous candle's body.

2. Confirm with Volume

Volume can provide additional confirmation. If the bearish engulfing candle has higher volume than the previous candles, it strengthens the validity of the reversal signal.

3. Wait for Confirmation

Never trade based on a single candlestick pattern. Wait for further confirmation before entering a trade.

This could be a break below the low of the bearish engulfing candle or another bearish candle following the pattern.

4. Set Stop Losses

Always set a stop loss to manage your risk. A common place to set a stop loss is above the high of the bearish engulfing candle.

Let’s see how things play out over the next couple of weeks. It should continue to be interesting.

Thanks for reading.

-Nate

 @tradernatehere