engulfing candle is highly appreciated by investors thanks to its trading results in the market. However, most investors still do not fully understand this candlestick pattern. How to trade and identify candlestick patterns including Bullish Engulfing and Bearish Engulfing? Let’s join Forex Trading to learn more about this candlestick pattern.
Engulfing candlestick patterns and detailed trading method
Engulfing is considered a candlestick pattern that signals to investors that the trend will reverse. Investors can rely on this candlestick pattern to come up with a suitable trading strategy.
Instructions on how to identify Engulfing candle in Forex
Engulfing candle in forex tends to signal a reversal in the future. The engulfing candlestick pattern consists of two candles. The following candle has the purpose of engulfing the entire previous candle. Engulfing candles can be bullish or bearish, they depend on the location of the formation or the current trend on the chart.
Detailed analysis of how to trade Japanese Engulfing candlesticks
This candlestick pattern is a tool to help investors confirm new trends. Besides, it also helps investors detect signals to exit orders. Investors can use the Engulfing candlestick pattern to support the continuation of the current trend.
When noticing a pattern developing in an uptrend. Investors rely on candles to reinforce their belief that it will increase in the long term. The engulfing candlestick pattern can also be used as a signal to exit an existing trading position if the trader holds a position at the end of the current trend.
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Detailed analysis of Bullish Engulfing and Bearish Engulfing candles
Currently on the market, there are two types of Engulfing candle: bullish engulfing candles and bearish engulfing candles.
Trading method with Bullish Engulfing candles
Bullish Engulfing is simply understood as a bullish engulfing candle. This is a gradually increasing reversal Engulfing candlestick pattern. The candlestick consists of 2 opposite candles and they will occur in a downtrend. The next candle will be longer than the previous candle. If this candlestick pattern appears, the market now means that the buyers have the advantage. This is considered an extremely professional reversal signal.
Before an uptrend can occur, price action must show a clear downtrend. A large bullish Engulfing candle shows that buyers are actively entering the market. And this creates the initial trend as motivation to bounce back stronger. To confirm whether a trend is actually reversing, traders can use indicators, support, and resistance levels.
To trade with Engulfing Bullish Candles, investors need to note that the opening price and bottom price of the second candle must be lower than the first candle. The closing price and peak of the second tree must be higher than the first tree. This pattern also often appears at the end of a long downtrend or after a sharp decline. If the first candle is a Bullish Engulfing candle in Doji form, the reliability will be higher.
Trading method with Bearish Engulfing candles
Bearish Engulfing is simply understood as a bearish engulfing candle. Basically, the bearish engulfing candle will provide investors with reversal signals from bullish to bearish. This is also a quite popular candlestick pattern in the market. The bearish engulfing Engulfing candle consists of two candles in opposite directions but the green candle’s body is not too large. On the contrary, the red candle has a quite long body.
To be able to trade with bearish engulfing candles, investors need to pay attention to this candlestick pattern. Only actually trade it once it has been confirmed on the chart. Especially with the Engulfing Bearish candlestick pattern, you should not trade in the Sideway market. The best condition to trade this pattern is that it is in an uptrend.
The standard entry point is at the closing price of the second candle, place a sell order. The next popular way to place an order is to sell at the breakout point of the pattern. They will be a few pips lower than the bottom of the other candle, usually 1 pip.
Engulfing candles and Japanese candlestick trading method in forex
When trading with Engulfing candle, investors should remember that the candles do not necessarily appear at the end of the trend. If an overtrend is in progress, candlestick patterns can appear to move according to the current trend.
In the image below we can see the strength index of the S&P 500 along with the appearance of the Engulfing candle. This is to strengthen the confidence of investors holding buy positions.
This example also includes the appearance of the engulfing candle Bearish candlestick pattern at the beginning of the trend. This signals a market reversal trend. However, subsequent price action negated this. The next candle does not close at the receiving low and the market continues to increase.
Use a combination of morning star candlesticks with the RSI indicator
Morning Star is also known as morningstar candlestick. The morning star candle with the first candle is a bearish candle. The second candle can be a bearish or bullish candle and the third can be a bullish candle. The RSI indicator has always been one of the most powerful tools for analyzing price trends. Especially when combined with the Morning Star candlestick pattern, the reversal signal is very accurate and is a very good opportunity for investors to catch the bottom and make a profit.
Regarding the time to place an order, when the RSI indicator crosses the 30 level in the oversold zone with the morning star candlestick pattern forming, traders can place a buy order at the closing price of candle number 3.
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Combine the inverted hammer candle with the support and resistance indicator
The first is to connect the inverted hammer candle with the support threshold indicator. Regarding trading methods, after determining the general trend of the market. Investors should wait for the hammer candlestick pattern to appear at the support price zone.
Currently, traders can open a buy order as soon as the hammer candle closes. And place an order a few pips away from the end of the candle. Additionally, investors can place a buy order when the price of the candle is confirmed. When investors connect this with support levels, trading signals become more reliable and secure. This also helps investors’ trading positions have a higher winning percentage.
Conclude
The above article is the basic knowledge that Forex Trading wants to introduce about Engulfing Candle. This candlestick pattern is fully effective when investors combine momentum indicators. In general, if an investor is a long-time trader, he will have acumen in the market. Combining the application of candlestick patterns with indicators will help investors have more opportunities.
FAQs
Should Engulfing Candles be used to trade in the Sideway market?
As mentioned, Japanese Engulfing candlesticks should not be used in markets with unclear signals.
Is volume in forex trading important or not?
Volume when trading forex is also a tool for technical analysis. That is why it is also very important when investing in forex.
Why is the engulfing candlestick pattern so important in technical analysis?
This is a candlestick pattern that helps investors spot trend reversals. If investors do not promptly detect a trend reversal, they will easily lose money.
