There are occasions when technical advantage alone can justify the case for a commerce.

The explanation for that is that many merchants typically keep on with a well-known record or class of shares, and for apparent causes: to keep away from buying and selling a inventory that you understand little or no about or to test the elemental foundation for every commerce. However there are literally thousands of shares, and sticking to acquainted territory can generally restrict your alternatives. You might wish to commerce shares you are acquainted with, or you could favor buying and selling “patterns” that you simply’re acquainted with.

If this matches your model, then technical analysis-based scans is likely to be your factor.

This is one instance: the bullish engulfing candlestick formation.

Scanning for Bullish Engulfing Patterns

Fast observe right here (primarily based on Thomas Bulkowski’s candlestick evaluation in his ebook Encyclopedia of Candlestick Charts). 

So, the bullish engulfing candlestick appears fairly good at first. In spite of everything, it has a 63% reversal fee, which suggests the worth goes above the sample’s high about 63% of the time. 

However there is a catch: The outcomes after a breakout could be a little bit of a letdown relying on the context. So, you could have to take a more in-depth look. A extra thorough examination reveals that this sample does higher when the worth goes down. In different phrases, it really works greatest in a downtrend or a bear market, in accordance with historic efficiency stats (primarily based on Bulkowski’s research).

Let’s contemplate a scan that appears for engulfing patterns in a downtrend.

1. Hearth-Up the Scan Library

From Your Dashboard, beneath Member Instruments, scroll all the way down to Pattern Scan Library. You can even entry the scan library from the Charts & Instruments tab. This performance was added in the newest launch and is accessible to all StockCharts members.

CHART 1: SAMPLE SCAN LIBRARY. This may be accessed from Your Dashboard or the Charts & Instruments tab.Chart supply: StockCharts.com. For illustrative functions solely.

Right here, you will have entry to varied scan protocols masking a variety of technical standards.

2. Seek for and Run the Bullish Engulfing Scan

This sample is without doubt one of the built-in fashions on the web page, and it may be discovered within the candlestick patterns part.

CHART 2: CANDLESTICK PATTERNS SECTION OF THE SCAN LIBRARY. There are a number of candlestick patterns to select from.Chart supply: StockCharts.com. For illustrative functions solely.

3. Set up the Outcomes

Each dealer has their very own preferences concerning buying and selling quantity, sector, or every other elementary and technical standards. For the sake of instance, let’s rank the scan outcomes in accordance with StockCharts Technical Rank (STCR) rating. In spite of everything, you are on the lookout for favorable “technical” outcomes, proper?

However there is a caveat with this sample: since bullish engulfing patterns work greatest for downtrending shares, the SCTR scores will doubtless be low, contemplating its “potential” restoration from a downtrend.

Once you run the scan, you will get an inventory of a number of shares. For the sake of demonstration, let’s zero-in on a number of shares within the final. The lesson right here is that, regardless of the sample or technical rating, context is all the time king.

4. Analyze the Context

Be aware: None of those inventory examples are supposed to be “tradable” examples. They’re supposed for academic functions solely and aimed toward demonstrating the StockCharts scan engine, and never essentially the shares.

Primarily based on the Bullish Engulfing stats talked about earlier on this article, there are specific eventualities you wish to keep away from. For the favorable eventualities, you continue to have numerous set-up homework to do.

Hypothetical Scan Instance 1

CHART 3: DOING A DEEPER DIVE INTO THE SCAN RESULTS. Including indicators such because the MACD and Chaikin Cash Circulation might help verify whether or not a development reversal is probably going.Chart supply: StockCharts.com. For illustrative functions solely.

Possibly not the most effective prospect for a swing commerce. Nonetheless, it is a sketchy commerce prospect.

Hypothetical Scan Instance 2

CHART 4: ANOTHER EXAMPLE OF ANALYZING SCAN CANDIDATES. This candidate could current a extra favorable prospect.

This provides you a special image.

• The Chaikin Cash Circulation seems to be prefer it’s about to tip again over the zero line, having descended from optimistic territory.
• The MACD is above the baseline and hints at turning up as nicely.
• The 50-day easy shifting common (SMA) is buying and selling above the 200-day SMA and is rising.
• Worth discovered help on the Ichimoku cloud (Ok=aka, “kumo”).
• Though the present value motion appears to be reversing the day gone by’s bullish engulfing sample, the cloud’s place as help retains the commerce comparatively “legitimate.”

In comparison with the primary instance, this may appear to be a extra favorable prospect.

And This is the Lesson…

Operating a technical scan will current you with a number of buying and selling alternatives. Though it might take some scouring to discover a extra favorable or ideally suited buying and selling setup, utilizing the scan will prevent numerous time.

Context is king, and a single technical chart sample can take the type of quite a few buying and selling eventualities. It goes with out saying that pattern-scanning know-how is not a panacea however extra like a “analysis assistant” — you should utilize it to your benefit, or abuse it to your drawback.

The Backside Line

Keep in mind that technical patterns can change primarily based on the context, however when you’re open to exploring technically-based buying and selling alternatives, instruments like StockCharts’ scan library might help you discover them. Operating a technical scan can rapidly reveal quite a few probably tradable eventualities. Although it would take a little bit of effort to pinpoint the right setup, utilizing scans can prevent time and even assist you to uncover a number of alternatives that you simply might need missed with out the correct instruments.

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your personal private and monetary state of affairs, or with out consulting a monetary skilled.