First a little chartology. The engulfing pattern comes in both flavors, bull and bear. It is a moderately accurate indicator of a reversal and one of the simplest to recognize.
In the DJ Industrials' chart below, the body of the red candlestick for the third week of June, 2010 "engulfs" the body of the prior weeks candlestick.
Don't confuse this with Churchill's comment on language, re: Lady Astor that "In this context, Mr. Speaker, the understanding is that Man EMBRACES Woman." Big difference between embrace and engulf.
(I've also seen a version ascribed to Margaret Thatcher)
You probably won't confuse it with the Abandoned Baby Pattern (I kid you not) which looks like this:
From BigCharts DJIA (weekly):
And a repost from April, '08:
Homage to Homma
by John Needham, The Daniel Code Report | January 20, 2008
Munehisa Homma is an unsung Japanese hero. We know little of Homma’s life. In some reports his name is spelt Honma, and the activities that were to make him a hero are ascribed to any time from 1650 to 1750. This is his story.
Homma ran the family rice trading business and rice was the lifeblood of Japan. More than a food, rice was a culture, Rice growing villages lived their whole lives around the rice planting, growing and harvesting cycle. Various parts of this cycle were celebrated with festivals and formal ceremonies. Rice was a precious commodity. Rice was more than a commodity; rice was a culture central to Japanese life. From rice came Sake the famous Japanese rice wine, rice cakes, rice flour, rice vinegar and much more. The rice plant produced not only its precious grains but a large amount of lush green foliage which when dry became straw. Rice straw too was an essential part of Japanese life. From straw, traditional villagers in the north made hats, clothes, utensils and the exquisitely fine rice paper. They made important religious figures, masks, decorations and a hundred other everyday items.
Rice was the Japanese economy. Feudal rulers, Daimyos collected grain from the farmers as land tax and sold it from their storehouses. Rice trading was the Japanese way of life for farmers and the merchant class. Soon rice would replace currency as the value of worth in the Feudal land of Japan.Today would be the most important day of Homma’s life, the day he would launch himself on the great adventure that would see him reach dizzying heights of fame and fortune; the day that would eventually see a humble rice trader of the merchant class achieve the greatest honour his country could bestow....Either bookmark or follow this link, it is worth your time.1440 Wall Street says simply:You might not use candlestick charts, but you should probably read the story of Munehisa Honma, the greatest trader of all time.and includes a link to another take on the story.