Hey traders,
In this educational post, I want to discuss with you one of the most accurate REVERSAL candlestick patterns - the engulfing candle.
The logic behind this pattern is quite simple:
âď¸In a bullish trend , after a strong directional movement , the price reaches some important structure level. Growing steadily and forming a sequence of green bullish candles the price suddenly forms a strong bearish candle.
What is particular about that candle is the fact that its total range (distance from the wick high to wick low) & body range (distance from body open to body close) exceed the ranges of a previous bullish candle.
đťSuch a candle we will call a bearish engulfing candle.
Most of the time it signifies a strong spike in selling volumes and willingness of sellers to push.
With a high probability, such a formation leads to a pullback or even a trend reversal.
âď¸In a bearish trend , after a strong short rally, the price reaches some demand cluster. Instead of breaking that and going lower, the price forms a strong bullish candle.
That candle engulfs the range of the previous bearish candle & its body size exceeds the size of the previous candle.
đ˘Such a candle we will call a bullish engulfing candle.
Quite often such a formation leads to a pullback or even a trend reversal.
đAnd there is just one single tip that will dramatically increase your performance trading the engulfing candle:
It is recommended to rely on this pattern ONLY IF it is formed on a key level:
âď¸Bullish engulfing candle must strictly form on a strong support.
âď¸Bearish engulfing candle must strictly form on a strong resistance.
Forming beyond key levels, the pattern occasionally will give false signals.
âłPreferable time frames to trade engulfing candles are daily/4h.
Learn to spot this pattern & you will see how efficient it is.
What candlestick patterns do you want to learn in the next posts?
