As of 10/29/2020
  Indus: 26,659 +139.16 +0.5%  
  Trans: 11,184 +237.90 +2.2%  
  Utils: 868 +2.32 +0.3%  
  Nasdaq: 11,186 +180.72 +1.6%  
  S&P 500: 3,310 +39.08 +1.2%  
YTD
-6.6%  
 +2.6%  
-1.3%  
 +24.7%  
 +2.5%  
  Targets    Overview: 09/29/2020  
  Up arrow29,300 or 27,400 by 11/01/2020
  Up arrow12,000 or 11,000 by 11/01/2020
  Up arrow915 or 840 by 11/01/2020
  Up arrow12,800 or 11,300 by 11/01/2020
  Up arrow3,700 or 3,400 by 11/01/2020
CPI (updated daily): Arrows on 10/23/20
As of 10/29/2020
  Indus: 26,659 +139.16 +0.5%  
  Trans: 11,184 +237.90 +2.2%  
  Utils: 868 +2.32 +0.3%  
  Nasdaq: 11,186 +180.72 +1.6%  
  S&P 500: 3,310 +39.08 +1.2%  
YTD
-6.6%  
 +2.6%  
-1.3%  
 +24.7%  
 +2.5%  
  Targets    Overview: 09/29/2020  
  Up arrow29,300 or 27,400 by 11/01/2020
  Up arrow12,000 or 11,000 by 11/01/2020
  Up arrow915 or 840 by 11/01/2020
  Up arrow12,800 or 11,300 by 11/01/2020
  Up arrow3,700 or 3,400 by 11/01/2020
CPI (updated daily): Arrows on 10/23/20

Bulkowski on the Last Engulfing Bottom Candle Pattern

 

In my book, Encyclopedia of Candlestick ChartsEncyclopedia of Candlestick Charts book., pictured on the right, I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines in the tests.

The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines, performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators), and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy by clicking on the above link.

The last engulfing bottom candlestick is what those versed in western chart patterns would describe as an outside day if you ignore the shadows. The first candle is a white one followed by a black candle that engulfs or overlaps the prior body but not necessarily the shadows.

The last engulfing bottom is supposed to act as a bullish reversal but testing shows that it is a bearish continuation pattern 65% of the time. To me, that makes sense because the tall black candle is bearish and price is closer to the bottom of the candle pattern than the top. That makes a downward breakout more likely and since the last engulfing bottom is supposed to appear in a downward price trend, a downward breakout would be a continuation of that downtrend.

Important Results
Discussion
Identification Guidelines
Three Trading Tidbits
Example
See Also

Last Engulfing Bottom Candlestick: Important Results

Theoretical performance: Bullish reversal
Tested performance: Bearish continuation 65% of the time
Frequency rank: 13
Overall performance rank: 48
Best percentage meeting price target: 70% (bull market, up breakout)
Best average move in 10 days: 4.85% (bear market, up breakout)
Best 10-day performance rank: 31 (bear market, up breakout)

All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

The ideal last engulfing bottom candlestick
Last Engulfing Bottom

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Last Engulfing Bottom Candlestick: Discussion

The last engulfing bottom candle pattern acts as a bearish continuation pattern 65% of the time, ranking 14th where 1 is best out of 103 candle types. However, the overall performance rank is just mid list at 48. That suggests the post breakout trend is mediocre. A quick check of the statistics shows that performance is weakest after a downward breakout in a bull market. The drop is just -0.91% after 10 days. That lousy performance tends to yank the overall performance score lower.

The best average move 10 days after the breakout is a rise of 4.85% in a bear market, ranking 31st for performance. I consider good moves as 6% or higher, so this candle pattern does not make the grade. Since that is the best performance this candle pattern can muster, do not depend on a long or profitable price trend after the breakout.

Last Engulfing Bottom Candlestick: Identification Guidelines

CharacteristicDiscussion
Number of candle linesTwo.
Price trend leading to the patternDownward.
ConfigurationLook for a white candle on the first day in a downward price trend followed by a black candle that engulfs the body of the white candle. That means the black candle has a body this is above the top and below the bottom of the white candle. Ignore the shadows.

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Last Engulfing Bottom Candlestick: Three Trading Tidbits

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book where the tips appear.

  1. Last engulfing bottom candles that appear within a third of the yearly low perform best -- page 473.
  2. For the best performance, trade this candle as part of a downward retracement of the upward price trend -- page 475.
  3. Use the price trend leading to the last engulfing bottom to help predict a breakout direction -- page 475.

Last Engulfing Bottom Candlestick: Example

The last engulfing bottom candlestick on the daily scale

Circled in red is a last engulfing bottom candlestick pattern. The two candles appear after a short-term downtrend of a few days in length. A white candle is the first in the two-line pattern followed by a black candle that is taller than the prior candle. The black candle's body is above the top of the prior candle and below the bottom of it as well. In other words, the black candle engulfs the body of the white candle.

As the chart shows, this last engulfing bottom does not act as a bullish reversal because price closes below the bottom of the candlestick pattern. A day later price reverses and starts moving up again. Had you bought into this last engulfing bottom expecting a reversal, you might have placed a stop below the bottom of the candle pattern, and then been cashed out the next day when price gapped open lower.

If we could look at the yearly price range and compare that to where the breakout from a last engulfing bottom resides, we would find that those in the lowest two thirds of the yearly price range function as continuation patterns most often. That leaves those within a third of the yearly high to work as reversals, but that is not the case. They also tend to be continuation patterns, just not at the rate of the other two-thirds of the yearly price range (that is, 58% continuations versus 69% to 72% for the other ranges)

-- Thomas Bulkowski

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See Also

 

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My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns

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