The engulfing candlestick pattern is one of the reversal candlestick you will be learning through this candlestick tutorial. Similar to the other reversal candlestick patterns, the engulfing candlestick is only effective when you are in a trend or when the market is moving in a trend channel.
So what is Engulfing Candlestick?
It is made up of 2 candles of different colours.
For Bullish Engulfing
It is made up of 1 up candle and another down candle which is longer than the up candle.
For Bearish Engulfing
It is made up of 1 down candle follow by another up candle that is longer than the down candle.
How to Use This Pattern?
Depending on the market movement, you can trade this pattern differently. If you are looking for a reversal trade in an up trending market, you will be looking for this pattern to occur at the new high point and if you are looking for a reversal trade in a down trending market, you should be searching for this pattern to occur at the new swing low.
Basically you should not be entering any trade simply based on this pattern alone, to further improve your winning accuracy, you should be using indicators like the Stochastic or MACD indicator to help you in this type of trade. If you are looking to go LONG, you should wait for the stochastic to go oversold and then curve up above the 20 mark. In addition, if you are able to get a MACD bullish crossover as well, there is a higher chance that the reversal will occur. However the best time to enter a trade is after the price break through a trend line.
If you are doing range trading and the price is moving within a trend channel. You should be waiting for the price to approach the support or resistance level. When you see the price moving toward a support and you see a bullish engulfing candlestick forming, you are most likely going to see the price being pushed up by the support. If you see the price moving toward a resistance and you see a bearish engulfing candlestick forming, you are likely to see the price being pushed down by the resistance level. Similarly you should employ the use of indicators to help you better time your entry.
The above is how you can make use of the engulfing candlestick patterns in your trade. Hope that you find this information useful.