When buying and selling single candlestick patterns, no sample is extra highly effective than the engulfing candlestick sample. You’ll be able to create methods with solely this sample that will simply outperform the market. I do know a dealer who has constructed his complete profession on this sample alone.

There are nuances to the sample as we’ll see shortly, however for a bar to be a bullish engulfing candle (BE+), the value has to shut above the excessive of the earlier bearish or impartial candle, engulfing the prior candlestick.

And for a bearish engulfing candle (BE-), the value has to shut under the low of the earlier bullish or impartial candle.

The screenshot under exhibits good examples of each a bullish and bearish engulfing candlestick.

It isn’t essential for the engulfing candle to engulf the entire wick of the earlier candle, because the bullish engulfing candlestick exhibits within the screenshot under – but when it does, the sample high quality is far greater.

First, let’s take into consideration the standard of the sample:

1. The scale: the extra candles it engulfs, the higher. The BE- you see above engulfed the earlier 7 candles of the uptrend. That’s highly effective.
2. The shut: the nearer the value of the engulfing candlestick closes to the excessive (for a BE+) or low (for a BE-), the extra momentum, the higher. You do not need to see massive wicks in your engulfing candlestick.
3. The placement: swing factors! We wish to commerce this bar on the backside/prime of pullbacks for a development continuation, or on the finish of strikes for a reversal.

These are the three primary high quality standards of the bar itself that are important.

Engulfing Candlestick And Context

However much more vital is context. Ask your self the next questions when assessing the context of your sample:

• The place on the chart was the BE+ or BE- printed?
• Is it near help/resistance?
• Is it near provide/demand?
• Or does it type in the midst of nowhere?
• Is the value ranging or trending?
• Is the value buying and selling towards or with the development?

These are vital inquiries to reply earlier than partaking in a commerce.

Take a look at the chart under and you’ll see two engulfing candles. For added data, I’ve additionally added a Bollinger Band indicator with normal settings (20 SMA, 2 StdDev).

The BE- is on the prime of the Bollinger Band (BB) and the BE+ is on the backside of the BB. Which sign is the higher commerce? For that, we’d like context. Let’s zoom out.

Wanting on the greater image, you possibly can see that the BE- fashioned towards the long-term bullish development and not at a key degree on our chart, whereas the BE+ was printed at a key flip zone degree on our chart, plus it was with the uptrend – throughout a correction development wave. The worth was additionally properly prolonged (on the backside of the BB), so taking an extended commerce right here could be thought-about a bullish trend-following commerce.

Sometimes, most merchants go lengthy on the break of the excessive of the BE+ or the low of the BE-, with a cease loss order on the opposite facet of the bar.

A typical take revenue goal for this technique could be the center of the BB, the opposite facet of the BB, at 2:1 or 3:1, or a mix of those with partial income, or perhaps a trailing cease.

It’s as much as you as commerce administration is extremely private. Let’s check out one other instance.

You’ll be able to commerce this sample on all timeframes, however essentially the most dependable indicators are discovered on the upper timeframes such because the Day by day and the Weekly timeframe. Extra skilled trades can also search for engulfing patterns on intraday timeframes, however the indicators there aren’t going to work as usually and require extra expertise.

Engulfing Candlestick Foreign exchange Sign

We’re on fairly an unique pair right here, the USDSEK however the identical ideas apply right here and you’ll commerce the engulfing candlestick sample on all markets.

The BE- sample fashioned at a key degree on the chart, on the excessive of the BB, and as a reversal commerce, towards the longer-term uptrend.

Buying and selling towards the long-term development will also be a worthwhile technique, however it is advisable ensure that (1) you discover sufficient context (right here the important thing degree plus BB), and (2) your targets aren’t too distant, since reversal worth actions usually don’t final so long as trend-continuation strikes.

The BE+ sample then occurred on the low of the BB and into the route of the long-term bullish development.

And on this USDCAD day by day chart, you possibly can see my favourite variation of the engulfing candle: one with a robust wick to the opposing facet of our commerce.

This means that the value pushed up initially, after which was strongly reversed till the day closed strongly bearish.

Once more, it is a reversal commerce however look how the value melted from the important thing ranges and the highest of the BB. A pleasant commerce with a number of context supporting the commerce concept.

Engulfing Candlestick Shares Sign

Lastly – some meals for thought to your additional analysis with a extra aggressive strategy to buying and selling engulfing candlestick patterns:

Not all pullbacks will go all the best way to the other facet of the BB. In strongly trending markets, usually you possibly can see worth solely pulling again to the center BB, which is simply the SMA 20, after which reversing into the development route from there.

Within the screenshot under, the inventory was in an general bullish trending atmosphere and the bearish correction wave pullbacks have been shallow and by no means reached the decrease BB. The worth fashioned two BE+ patterns proper on the 20 easy transferring common (center BB) through the corrections. These patterns have been supreme development continuation indicators.

Searching for engulfing bars in these areas can yield some good income as properly, however this solely works in robust trending markets. I like to recommend weekly charts on shares for this strategy, as Foreign exchange is not going to be in a strongly trending situation fairly often.

And that’s it for this technique. Can buying and selling be this easy? Sure, in fact it might. Easy scales, fancy fails. Have enjoyable testing this strategy and pay shut consideration to the standard standards: dimension, shut, location, and context!