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Thursday, May 27, 2010

Super Easy Engulfing Candle

An Engulfing candle is a candle whose length completely encompasses the previous candle with a close above the high or below the low candle. If the close is above the high of the previous candle then it is a bullish engulfing candle and that signals a buy, while if the close is below the low it is a bearish engulfing candle that’s signals a sell:

The arrow is pointing to a bullish engulfing candle that if bought would have produced a winning trade.

Engulfing candles are the result of a sharp turn in the direction of price as compared to the previous bar. So in the case of a bearish engulfing candle price was previously moving up, and at the open of the next bar price tries to continue its upward movement but cannot not sustain it and it quickly moves down and closes below the low of the previous bar signaling a trade.

Now to see this pattern in action let’s look at a hourly chart of Eur/Usd

EUR USD Hourly Chart

At each of the numbered points on the chart we see a bearish engulfing candle followed by a hard move down. This is a very reliable pattern that is central to my own trading. Incorporating this into your trading will only serve to increase your profits.




A special note about the third trade:

If you notice the first two bearish engulfing candles followed bullish candles, but the third one followed another bearish candle. This is common and is still a valid trading signal.

Well that’s all for today. I hope you all take this technique and increase your profits. Until next time.

Happy Trading

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Quoted from Forex Crunch

1 comment:

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