Trading The Engulfing Candlestick Pattern With Market Structure

The illustration below shows a bullish engulfing candle in action. They don’t come around often, but when they do it’s important that you know how to take full advantage of the profit potential. Knowing how to identifying the strong patterns will engulfing candle help you determine who’s in control of the market. This information has been prepared by IG, a trading name of IG Markets Limited. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.

No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. The first candlestick shows that the bulls were in charge of the market, while the second shows that bearish pressure pushed the market price lower. The second period will open higher than the previous day but finish significantly lower.

Tip #2: Trend Line Support Near the Engulfing Pattern

Check the market consolidation at the lower sector of the charts. This will give you an idea of the future highs that will likely hit the chart soon. After the bullish engulfing pattern appears, we see a three-week rally in price. This is a good opportunity to enter a buy trade, with a stop loss set below the support level.

We could wait for the third signal in more conservative trading, but the hanging man pattern was enough to determine the next price movement. We could open a trade to sell after the hanging man pattern formed or after the second bearish engulfing pattern appeared. The strategy implies opening short positions after a bearish reversal pattern appears on a strong resistance level.

– Trading Engulfing Patterns using trendlines strategy

Please let us know your first real profit using the engulfing bar trading strategy; we are always empowered when we read your success story. Price Action Strategy is the ultimate indicator telling you what’s going on in the market. In terms of the market sentiment, it’s the only reliable source because the best technical indicators are all based on price action.

The pullback should not rally above the high of the prior pullback, as this violates the rules of a downtrend. When trading a support line we are waiting for a rejection from that support. Parabolic moves attract all newbie traders using a lot of leverage. Engulfing patterns show an increasing strength either to the upside or to the downside. Whoever wins the battle will make the market move in that direction. This example comes from the 3-minute chart of the DAX futures listed on EUREX.

How reliable is the engulfing candle pattern?

It happens when a small bearish candlestick is completely covered by a bullish candle. The body and upper and lower shadows of the bullish candle must completely surround that of the bearish candle. A bullish engulfing pattern is the opposite of a bearish engulfing pattern, which implies that prices will continue to decline in the future.

By applying this approach, Crypto/Stock traders can potentially benefit from the bullish engulfing candlestick pattern. On the four-hour EURUSD chart, we can see that the price has been in a downtrend. However, at the trend low, there are several bullish reversal signals.

How to use the Bullish Engulfing Pattern to catch market bottoms with precision

I would be lying to you if I were to say that following this strategy will give you winning trades only. In other words, for every trade you win, you can expect to lose one. Now, you get the idea of why smart money can use the textbook patterns to trick the retail traders. To develop an effective engulfing trading strategy, we need to establish a proper framework to stack the odds in our favor. How we interpret the psychology behind the engulfing pattern plays a big role in whether or not the pattern will work out. Moving forward, let’s see the different ways how to trade the engulfing pattern.

• A Bullish Engulfing candlestick and Hammer are essentially the same.
• That’s where the price will tend to touch and come back to the original trend.
• The key idea here is that you need to be very selective and only trade the engulfing pattern when it develops at extreme ends of a trend.
• Note that the engulfing candle’s range completely engulfs the previous candle.