Engulfing candle trading strategy – Engulfing Candlestick Pattern tutorial

Which is the Engulfing Candle trading strategy? Find out in this Engulfing Candlestick Pattern tutorial!

Are you curious to see what bullish/bearish engulfing candlestick patterns look like? Watch our latest tutorial video on Engulfing candlestick pattern and find out.

Bullish/bearish strategy – Engulfing Candlestick Pattern tutorial

Hello, everyone! Today, we are going to discuss a strategy called, “Engulfing Candlestick strategy”, which is usually very good to trade, especially on higher time frames. So, here we are speaking about either a four-hour chart, a daily chart, or a weekly chart. Why is that? That’s mainly because here we are talking about a strategy that is extremely powerful when it comes to envisaging end of the trend and trend reversal. We have prepared a couple of charts here, to show you, and to demonstrate what are pros and cons when you actually take into consideration this strategy and try to incorporate it in your daily trading plan. This is one of the more basic strategies because you only need a Japanese Candlestick system, that’s available on all platforms and that vast majority of traders use every day in trading. And, as every strategy, we are discussing two different versions, a bullish and a bearish one.

So, here we have an example of the Bullish Engulfing pattern, and as it’s implied in the name, this pattern suggests that the bulls are taking control from the bears, and the first sign that you have to look, is the trend. So, if we have a downtrend, or a declining trend as we see here, so you can see here, I marked the prices, so here it’s a drop of 600 pips in a couple of days, and then we are looking for a reversal because, as we know, nothing happens in a vertical way, in trading. So here, what we have is we have a bottom that is actually seen that we formed bullish Engulfing Candlestick. What does this mean? You can see that we have two candlesticks. The green one, the bullish one, is actually the one that… Its body is bigger than the previous bar or the previous candle, as it can be seen here. So, it indicates great buying interest that actually swallows the range of the prior candlestick, this one, and it surpasses its body.

There are two types of bullish engulfing strategy, more aggressive and more, I would say, normal way. This is more of normal since we are only talking about a body that is bigger than the previous candle, while a more aggressive one is, you will see, for example, here, is that actually, both low is lower than the previous low, high is higher than the previous high, and, actually, the body is bigger. So this is a really engulfing pattern or a candlestick, and it is much, much higher and much bigger than the previous candle.

So, let’s get back to the previous chart, which is the Dollar/Canadian chart, and here, as we said, we have a drop of 600 pips, then we are trading at the lows. We, as soon as we form and close this candle, you can see that we have a great buying interest and we close at the high which immediately prompts the price to go higher because the bulls are taking short-term control and push the price higher. And you can see that here, from the lows, we have retraced around 50%, or 300 pips in this particular example. So if you decided to buy the price at the close of this four-hour Candlestick, at 1.2110, then you put your Stop-Loss below the low of the Engulfing Candlestick, which will be around 1.2053, so you reach 60 pips here and then you can just look for another resistance or a big resistance, that you can close your profit. The very obvious resistance here is, you can see these two lows here, at around 1.2350, and then, if you just, actually, here, if you close your profit, then we are talking about 200 pips, more than 200 pips profit, of course, if you are patient.

The second example I have here, the Euro/Dollar, is also bullish and Engulfing pattern, but, as I said, right now we have a massive bullish Engulfing candle, that completely engulfs or swallows the previous Candlestick here, and you can see here, again, we have a downtrend so we create lower highs, you can see here lower highs, you can see here lower lows. And then, we create a sort of a bottom here, then a huge big candle, which prompts the price to go higher and immediately, from here, we have 60 pips move. Of course, this is four-hour chart. If you are just scalping them, this is an intra-day trade, it can give you 50-60 pips. If you are more patient, you can see that the price went 150 pips higher the next day.

The third example that we have here now is Bearish Engulfing Candlestick Strategy, which is very, very similar, or exactly the same as the Bullish one, just we are now obviously talking about bears that are taking control of the bulls. And here, we have a big uptrend, we have a 250 pips move from the lows, and then you can see here, first we have indecision, this is a Doji Candle, and then, you have a huge massive red bearish engulfing candle. You can see that we pushed 20 pips above the previous high, we closed at the bottom and then the only way this is going to end is in a huge push to the downside. You can see that the next candle alone, we are talking about 50 pips, again, on a four-hour chart, so if you decided to enter the price here, at 1.2430, put your Stop-Loss here, above the previous high, that’s 50 pips you’re risking, in order to get, only if you just wanted to scalp, then we would talk about 50 pips. But again, if you’re more patient, and then, if you trail your Stop-Losses, then we are talking about much, much bigger gains.

As a summary, it’s an extremely powerful Candlestick pattern and the greatest strength of this pattern is that you can actually see when the trend is reversing and that we want to actually start thinking about, in this particular case, selling the Euro/Dollar, because, obviously, this Candlestick is a result of bears taking control over the bulls.

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