Bearish and Bullish Engulfing Pattern Trading Strategy Guide

It’s important to wait for the second candlestick to close before entering a trade. I would take the time out to load up your favourite trading platform and identify swing highs and lows, then review the ones with an engulfing pattern. You can set your take profit level based on your risk management level, each trader is different, but for simplicity sake, it would be ideal to look for the nearest support level. The swing high can be formed by a shooting star candlestick on a resistance level for example. The swing low can be formed by a hammer candlestick on a support level for example. Below I am going to give you a quick step-by-step playbook on how to find engulfing patterns accurately.

Some look-back periods for the RSI indicator include 2, 5, or 14 days. Now, during a 14-day look-back, if the RSI reads above 70, the conclusion is that the market has been overbought. In figure 7, when the bearish engulfing candle forms, you’ll notice that the RSI (14) has a value of 72.

What is the Engulfing Pattern?

For instance, if you were to trade the 1 hour chart, you would look at support and resistance levels on the 4hr, Daily, and Weekly charts. If you were to trade the Daily chart, you would look at support and resistance levels only on the Weekly chart. This guide has gone over a large portion of what engulfing patterns are about. I think that finding these engulfing patterns around swing areas could help you trade the markets and gain confidence in trading the markets. An engulfing candlestick pattern can occur mid trend or at the end of a trend. Trading with the trend is one of the most advantageous things a trader learns to do.

Next, we need to establish how the engulfing trader strategy works. The apparent shift in the supply-demand balance is revealed by the second candle, which shows that the buyers have stepped in and managed to overcome the sellers. How we interpret the psychology behind the engulfing pattern plays a big role in whether or not the pattern will work out. Simply put, we want to know the psychology behind the engulfing pattern. Let’s get the ball rolling and start with an explanation of what is the engulfing pattern, and then we’ll proceed forward and reveal the twist. I don’t advocate the use of blind entries if you are just starting out.

Best Places To Trade Engulfing Patterns

This means that during a long move, you could use the engulf to enter multiple times. A bearish engulfing pattern is the exact opposite of the bullish one. It forms during an uptrend where a smaller bullish candle is engulfed by a bigger bearish candle. On the other, a bearish engulfing pattern happens in an uptrend, when a smaller bullish candle is completely surrounded by a bigger bearish candle. Since the bearish-engulfing pattern denotes a falling market, we put the stop-loss order at the extreme top of the pattern (the highest swing). Bearish engulfing patterns are suited for traders looking for day moves and want to take advantage of full-day swings.

You’re far better off trading only the setups that are confirmed by price action and working your way up to trading blind entries, if you so choose. 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. Now let’s add the key level so you can see how influential these patterns can be with the proper amount of confluence.

Bullish and Bearish

Waiting for a pullback means you’re getting advantageous pricing for the next wave of the trend when—and if—it unfolds. Get ready to receive three amazing chart pattern videos that are over 30 minutes long straight into your inbox. If you want to take your trading to the highest point of success, you need to be able to maximize your profits with each trading opportunity. The next step is to establish how to manage risk, i.e. where to hide our protective stop loss and when to exit the market.

How we interpret the engulfing pattern can provide us with a further understanding of the current market sentiment, whatever form it might take. In return, this can help us better assess the probabilities of success behind each individual bearish and bullish engulfing pattern. The engulfing trading strategy will give you the skills you need to become a better trader. Through this guide, we’re going to take a deeper look into what exactly is the engulfing pattern and how understanding this particular pattern can improve your outcomes as a trader. Furthermore, we’re going to show you how to master the engulfing bar trading strategy with a simple twist.

How to Trade the Bearish engulfing Pattern

In forex, technical analysis is the primary decision-making apparatus for legions of active traders. Accordingly, the bearish engulfing pattern is a popular element of countless reversal trading strategies. The GBP/USD chart below gives us a good look at the bearish engulfing pattern.

So, let’s see what the bullish engulfing pattern is telling us from the supply and demand perspective. While you can find this candlestick price formation by using the engulfing pattern indicator, you can easily spot the pattern with your naked eye. The pattern consists of two candles, and the second red candlestick with a bigger body engulfs bullish engulfing pattern the first candlestick with a shorter body. It’s easy to combine the pattern with other technical analysis indicators to confirm a price reversal. To protect ourselves, the most common way is to put the stop loss under the bullish engulfing pattern. Above the high of the bearish engulfing pattern is the most common way to do it.

Intra-day Bearish Engulfing Pattern

This gives a confirmation that the markets are looking to go higher. You have to choose what time frame you wish to work under and where you find your results best. They are very obvious to spot and indicate a strong momentum shift. There are so many tweaks and strategies based on this pattern it’s insane to think about.