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Forex Engulfing Candle

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Knowing these three things will help youmaximize your profit potential and minimize your risk. A bearish engulfing candle signals a trend reversal on the top and points to bulls’ weakening momentum. Bearish engulfing patterns warn buyers that price growth is exhausted and the price chart will soon reverse down. If you see a market situation similar to the picture below, think about going short after you have additional confirmations. In this example, the bullish engulfing pattern was strengthened by the fact that there was a key support level below at 1.2275, making this a multiple factor setup.


Rayner Teo is an independent trader, ex-prop trader, and founder of TradingwithRayner. Also, if you look at the lower timeframe, you’ll likely see a break of structure as the price makes a higher high and lows . This is especially true if the size of the candle is small or of similar size to the earlier candles. As you’ve seen earlier, a Bullish Engulfing Pattern is usually a retracement against the downtrend . You might not want to trade the Weekly timeframe because it requires a large stop loss. Finally, you must decide where to exit your trade if the price move in your favour, or against you.

Secrets of forex system that is profitable (en)

You want to place your entry 1 or 2 pips higher above the bullish engulfing candlestick pattern’s high. The chart example above shows the same bullish engulfing forex pattern as before, but this time we added a volume indicator to the lower panel of the chart. With this strategy, the volume indicator plays an important role in detecting whether the engulfing candlestick showed an increase in buying volume .

Be aware of the and be willing to invest in financial markets. TradingWolf and the persons involved do not take any responsibility for your actions or investments. Because of this, it is essential for traders to be aware of this signal and understand how to interpret it when it appears appropriately. First, you want to see a strong momentum move coming into an area of support or resistance. This indicates that there is interest in the stock at these levels.

How to trade with engulfing candle indicator?

Bullish engulfing patterns can be a great way to identify potential reversals in the market. They provide you with yet another clue you can use to determine a probable outcome, thus putting you one step closer to becoming a successful Forex trader. Before we move on, I want to point out that the bullish engulfing pattern is most effective on the higher time frames.

  • The stop will secure your bankroll and you will typically know the maximum you can lose on the trade.
  • Chart patterns Understand how to read the charts like a pro trader.
  • Now let’s add the key level so you can see how influential these patterns can be with the proper amount of confluence.

Kyle Townsend is the founder of Broker Report, an experienced forex trader and an advocate for funding options for retail forex traders. The yellow arrows on the chart show the size of the pattern and how it should be applied as a minimum target on the chart. This target gets completed with the next candle, which appears after the Engulfing confirmation. When this distance is fulfilled by the price action, you can either close the whole trade, or part of it.

Entering The Trade

You can also change these default settings according to your strategy. The body-to-wick ratio of both candlesticks should be greater than 60%. If the trend threatens to reverse—by making a higher high and higher low during a downtrend and short trade or by making a lower high and lower low during an uptrend and long trade—exit the trade. Engulfing patterns aren’t 100% accurate, so proper risk management is required.

Engulfing Candle Patterns & How to Trade Them – DailyFX

Engulfing Candle Patterns & How to Trade Them.

Posted: Wed, 05 Jun 2019 07:00:00 GMT [source]

The best place for a stop loss order in an Engulfing trade is beyond the Engulfing pattern extreme. This would mean that if the Engulfing setup is bullish, the Stop Loss order should be placed under the lower candlewick of the engulfing candle. If the Engulfing setup is bearish, then the Stop Loss order should be located above the upper candlewick of the engulfing candle. If the Engulfing scenario is bullish, the price breakout should come through the upper level of the engulfing candle’s body. The Engulfing candlestick setup has a strong reversal character.

Identify the bearish engulfing pattern

You might consider placing it near the open of the first in the pattern, though. If the market moves back to this level, the pattern may well have failed. Three Line Strike Candlestick Pattern to help you detect sniper entry point mostly for You can use this as an indicator to detect an entry point for your trade. Please cross-check the Macro and Micro trend and don’t go against the trend. That’s a reversal pattern, so its reliability is high, even more so on hourly time frames and longer. Other candlestick formations are sometimes required to confirm the pattern.

  • For those who have been following me for a while, you know that I like to use the 50% entry method.
  • Bearish engulfing patterns are a great way to identify a potential top in a market.
  • That said, patterns where only the range engulfs the previous candle can also be extremely effective and should not be ignored.

Now, before we reveal the better way to trade the engulfing pattern trading strategy, it’s important to understand what’s going on behind the scene. Don’t worry if you already know how engulfing trading works, we have some additional information for you as well. This will strengthen your existing knowledge about the engulfing candle trading strategy and help you find new opportunities to succeed as a trader.

Forex Engulfing Candle Trading Strategy

Those clues often come in the form of candlestick patterns such as pin bars or inside bars. The bearish engulfing candle is one more clue we can use to identify a potential top in a market. A bearish engulfing candle pattern is the opposite of a bullish engulfing. Here, a small green candle is followed by a much larger red one which indicates a new downtrend. As with its bullish counterpart, there should be a gap between the two candlesticks, so the body of the second entirely consumes the first. A bearish engulfing pattern is a two-candle pattern where a bearish candle engulfs the previous bullish candle.


If the price is decreasing and an Engulfing pattern appears on the chart, this suggests that the price action might be forming a bottom. When located at a stronger location, bullish engulfing is a manipulation activity from market makers to place a cheaper entry. One thing to keep in mind about blind entries is that while they can be extremely profitable, they aren’t nearly as probable as setups with price action as confirmation. This is because a blind entry has one less confluence factor at work versus a setup with confirming price action.


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