Counting Moving-Average Streaks Before Engulfing Reversals

Summary

This indicator is designed to add context to bullish and bearish engulfing patterns. At a bearish engulfing, it counts the consecutive prior closes above a moving average; at a bullish engulfing, it counts consecutive prior closes below the average and records the count as negative. The engulfing test requires opposite-colored adjacent candles, a larger current body, and a body that covers the prior candle’s body.

It also smooths the two count series with moving averages, allowing a user to observe whether these pre-pattern streak counts are rising or falling. The author presents this as a way to help judge whether an engulfing pattern may mark a reversal, not as a complete trading system. No market, timeframe, parameter evaluation, trading rules, or performance evidence is supplied. The counts and their smoothed values therefore describe recent price context; they do not demonstrate that the patterns predict profitable reversals.

Key ideas

• The indicator identifies bullish and bearish engulfing candles using candle direction and body coverage.
• Before a bearish engulfing, it counts the consecutive prior closes above a moving average.
• Before a bullish engulfing, it counts consecutive prior closes below the average and makes the count negative.
• Separate moving averages smooth the bullish and bearish count series.
• The document proposes using these measures as reversal context but provides no performance evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.