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Written and copyright © 2008-2009 by Thomas N. Bulkowski. All rights reserved.
In my book,
Encyclopedia of Candlestick Charts  , 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 top is a two line candlestick pattern that enthusiasts would recognize as an outside day if you ignore the shadows. The first day is a black candle in an upward price trend
followed by a taller white candle whose body is above the top and below the bottom of the black candle. The white candle engulfs the body of the black candle.
As the last engulfing top name suggests, this candle is supposed to be a bearish reversal of the up trend but isn’t. Testing shows that the candle pattern acts as a bullish
continuation 68% of the time, ranking 9th out of 103 candle types where 1 is best. Unfortunately, the overall performance rank suggests the price trend after the breakout is weak.
Important Results
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Theoretical performance: Bearish reversal
Tested performance: Bullish continuation 68% of the time
Frequency rank: 14
Overall performance rank: 79
Best percentage meeting price target: 67% (bull market, up breakout)
Best average move in 10 days: -4.42% (bear market, down breakout)
Best 10-day performance rank: 38 (bull market, down 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.
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 Last Engulfing Top
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Discussion
The last engulfing top is supposed to be a bearish reversal, but it acts as a bullish continuation 86% of the time. That is because price ends the candlestick pattern near the
top of the two-line pattern. An upward breakout, which would confirm a bullish continuation, would be a close above the top of the candle, so that is easy to achieve. However, with an overall
performance rank of 79, the post breakout trend is brief.
The best average move 10 days after the breakout is a drop of 4.42% in a bear market. A good move would be 6% or more. The best 10-day performance rank that the last engulfing top
can muster is 38, where 1 is best. That is not bad, but it does leave lots of room for improvement. Looking at the statistics, the best performance from this candle comes when the breakout
is downward. That suggests reversals outperform continuations for this candle pattern.
Identification Guidelines
| Characteristic | Discussion |
| Number of candle lines | Two. |
| Price trend leading to the pattern | Upward. |
| Configuration | Look for a black candle followed by a white candle that overlaps the prior black candle’s body. The white candle should have a body above the prior
candle’s top and below the prior candle’s bottom. |
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.
- Last engulfing top candles that appear within a third of the yearly low perform best -- page 482.
- For best performance, trade the last engulfing top in an upward retracement of a downward price trend -- page 484.
- The last engulfing top breaks out upward most often -- page 484.
Example
With a frequency rank of 14, where 1 is most plentiful, you can see why the last engulfing top appears often in a historical price trend. I show the candle pattern circled in
red on the daily chart. All of the last engulfing tops in this example appear in an upward price trend, but sometimes you have to use your imagination.
Each of the last engulfing top
candles begins with a black candle. In this case, they are small, sometimes doji shaped. The following day, a tall white candle appears that towers over
the prior black body, engulfing it and giving the candle pattern its name.
Notice that each of these last engulfing tops breaks out upward when price first closes above the top of the pattern. That means they act as continuations of the upward price trend. The candle
at A shows price shooting upward, breaking out of the congestion region and scoring nearly a 5 point gain in fewer days.
-- Thomas Bulkowski
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