Davis Martin Review – Here is Davis’s Favorite Candlestick Pattern that he teaches in his Daily Profit Multiplier program
Did you know that majority of stock traders lose money when trading candlestick patterns, especially on an intra-day time frame?
It was not long ago Davis Martin was making the same mistakes. Getting into trades far too early just to watch his stops get hit.
So that’s when Davis Martin sat down and thought about how he could put the odds in his favor.
Davis Martin began tweaking the way that interpreted candlesticks, and let me tell you, its been a game changer for him!
Not only do candlesticks work, Davis has found a great pattern, that wins nearly all the time.
And you know what else?
This pattern could signal a huge sell-off in the SPY… and it could happen sooner than a lot of traders expect.
Disclosure: There are some affiliate links below, but these are all products I highly recommend. I won’t put anything on this page that I haven’t verified and/or personally used.
The Bearish Engulfing Pattern
Here is what Davis has to say about this pattern.
In order to identify a Bearish Engulfing Pattern, try to imagine a mountain with its snowy top and steep sides.
Where prices are rising upwards on the one side of the mountain and downward on the other and the engulfing pattern is the snow-covered top.
The top of the mountain is made up of a pattern that is formed by two candles and typically identified with a green candle followed by a red candle.
It gets its name by the strong price action being engulfed by the weak price.
More specifically, the green candle is being engulfed by the red candle.
What does a Bearish Engulfing Pattern indicate?
- In the first candle, the buyers are in control and pushed the price higher
- In the second candle, the sellers are actually in control and pushed the price lower than the previous candles low
How to recognize it:
- The first candle closed bullish (green)
- The body of the second candle completely engulfs the body of the first candle
- The second candle closed bearish (red)
This signals that sellers have completely overwhelmed the buyers and are now in control of the stock price.
Great – so let’s get stock trading!
Unfortunately, there are many thousands of signals going off.
Check out this example of all of the Bearish Engulfing Patterns on the QQQ’s.
As we can see by the chart, there are too many trades to take blindly.
It’s best to combine multiple patterns to help identify a true market reversal.
Bearish Engulfing Pattern at Resistance Zones
It’s always important to combine tools when trying to place a short trade in the markets.
One tool that Davis Martin uses in his daily analysis is identifying resistance zones.
The closer a stock can get to resistance the more likely it is to have a sell-off.
In this example, the SPY was bumping up against resistance at the same time a Bearish Engulfing Pattern emerged.
What a perfect setup – giving about 3% of profits in the SPYs in just a few days!
Here is another example of the SPY’s selling off after a Bearish Engulfing Pattern as the price touched a Fibonacci Extension level.
Another great setup!
The SPY’s signaled to Davis Martin that the bears were in control at the high’s near $292.
The sellers were successfully able to drive the price down to $272 or about 7% lower!
Pro Tip: This works really well in strong trending or parabolic markets.
Understanding Price Action
It’s important to make sure there is strong price action at the resistance level.
When you are trading the Bearish Engulfing Pattern, you don’t want to see weak price action at a key level.
Why is that?
It’s not a strong conviction that sellers are in control and you may be selling into the uptrend.
Weak price action:
In this example above, you can see how the rejection was weak and the sellers were not in control.
Instead, you want a strong price rejection.
So strong that the Bearish Engulfing pattern exceeds multiple candles.
Strong Price Action:
See the difference?
It’s important that you monitor the price rejection at key levels.
With such higher price action the market is more likely to reverse lower.
Anticipating Future Bearish Engulfing Patterns
Nobody is a fortune teller but we can anticipate future stock prices by using the tools we have as a trader…
As shown previously, it appears that Bearish Engulfing Patterns work well around areas of resistance either in past trading or using Fibonacci Extensions.
What if we are looking to get short the markets and want to anticipate a Bearish Engulfing Pattern?
Here is the current SPY and how we can use these similar tools to anticipate market direction.
As you can see, the SPY is still a bit away from the Fibonacci resistance level.
And that’s perfect!
Now we wait for the Bearish Engulfing Pattern to emerge, hopefully right near the Fibonacci level. It must also have large price action.
That would make for the perfect storm. But only time will tell now.
- The Bearish Engulfing is a reversal pattern than aims to tell the trader that the sellers are in control
- Never trade the Bearish Engulfing Pattern by itself. You must take into consideration the trend, resistance levels, etc.
- Combining the Bearish Engulfing Pattern with price action is the best way to identify high probability trading setups
That’s right, 90% of the last Bearish Engulfing Patterns were spot on!
That’s a 90% win rate if you followed a simple candlestick pattern like this!
So stop missing out on trades like these!