How to Spot and Trade the ENGULFING CANDLE

8 lug 2023

https://www.tradingview.com/x/O6x4f2Ik/
Hey traders,
In this post, we will discuss a classic candlestick pattern formation each trader must know - the engulfing candle.

Key properties of this pattern:
🔑 Engulfing candle is a reversal pattern.
🔑 Engulfing candle can be bullish or bearish.

❗️Also, remember that this candle demonstrates the highest accuracy when it is formed on a key level (support or resistance).

⬆️Bullish Engulfing Candle usually forms after a strong bearish impulse.
Weakening, the market keeps going lower forming bearish candles.
However, at some moment, instead of forming a new bearish candle the market reverses. The price forms a bullish candle that engulfs the range of the previous bearish candle and closes above its opening price.

Such a candle we call a bullish engulfing candle.
The main feature of this pattern 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 bearish candle.

Being formed on a key support level or within a demand zone it signifies a highly probable pullback or even a trend reversal.

⬇️Bearish Engulfing Candle usually forms after a strong bullish move.
Reaching an overbought condition, the market keeps going higher forming bullish candles.
However, at some moment, instead of forming a new bullish candle the market goes in the opposite direction. The price forms a bearish candle that engulfs the range of the previous bullish candle and closes below its opening price.

Such a candle we call a bearish engulfing candle.
The main feature of this pattern 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.

Being formed on a key resistance level or within a supply zone it signifies a highly probable pullback or even a trend reversal.

Take a look how powerful the engulfing candle is: on Gold chart, 4H time frame, the price formed a bullish engulfing candle after a pullback. The formation of the pattern immediately triggered a bullish continuation.

At some moment, the market became overbought, the formation of a bearish engulfing candle confirmed the initiation of a bearish movement and the market dropped heavily then.

📝Engulfing candle can be applied for scalping lower time frames, for intraday trading, or even for swing trading.
Personally, I apply this candle on daily/4h time frames as one of the confirmations of the strength of the structure level that I spotted.

Let me know, traders, what do you want to learn in the next educational post?