Grapefruit USA Inc (GPFT)

[madtig6]

Nothing is simple-bullish engulfing

The Caveat: Note the last 2 paragraphs

Theoretical performance: Bullish reversal
Tested performance: Bullish reversal 63% of the time
Frequency rank: 12
Overall performance rank: 84
Best percentage meeting price target: 67% (bear market, down breakout)
Best average move in 10 days: -6.31% (bear market, down breakout)
Best 10-day performance rank: 14 (bear market, down breakout)



Discussion

The bullish engulfing candlestick, at first glance, appears to perform quite well. It has a reversal rate of 63%. That means price closes above the top of the candlestick pattern 63% of the time. The bad news is that with an overall performance rank of 84, the post breakout performance can be dreadful.

A closer look at the numbers shows that downward breakouts are where this pattern outperforms. The best move 10 days after an upward breakout is a drop of 1.18%. Usually you would see a rise 10 days after an upward breakout but not in this candlestick. Thus, if you are going to rely on this candlestick then look for a downward breakout. The best move appears in a bear market, so that is the way to trade this one.

Identification Guidelines

Characteristic Discussion
Number of candle lines Two.
Price trend leading to the pattern Downward.
Configuration Look for two candles in a downward price trend. The first is a black candle followed by a taller white one. The white candle should have a close above the prior open and an open below the prior close. In other words, the body of the white candle should engulf or overlap the body of the black candle. Ignore the shadows.


This bullish engulfing candlestick acts as a temporary reversal of the downward price trend. This is also one of the trading setups that I suggest you avoid. Why? Because the primary trend is downward. The bullish engulfing candlestick reverses that trend, but only for a short time. The primary downward trend takes over and price resumes falling.

Trade bullish engulfing candlesticks when the primary trend is upward. Look for a downward retrace in a rising price trend for the best chance of success.