This article will be extremely interesting to traders who are looking for price action strategies. The only difference is the timeframe. To master price action trading, learn the facts about price actions.
Many traders know that the price will drop after a bearish pattern. However, the price will rise after a bullish pattern. But they don’t know the facts and aren’t willing to dig into the engulfing patterns.
Engulfing is the source of price action. As a forex trader, I can tell you that this is true. Let’s begin with the basics and move on.
Engulfing candle
An engulfing candle is a candlestick that completely engulfs the previous one. There are two other types of engulfing candles.
- Bullish engulfing
- Bearish engulfing
Engulfing candles must be done in a specific way.
- The high of engulfing candle must be higher than the previous candle
- Low of engulfing candle must be lower than the previous candle
Bullish engulfing candle
A bullish engulfing candle is a sign that a bearish tendency has been reversed and that a bullish tendency has begun. It means that the closing price of a candlestick will be higher than its opening price (green color), and will make a higher high or lower low based on the previous candle.
Trades should be done correctly using an engulfing candlestick. However, it’s not necessary to make a higher high or lower low. A Doji Candle can sometimes make a higher or lower low.
In this case, the Doji candle is also an engulfing pattern, but it is not tradeable. The Doji candle is a pause in the trend. It does not represent a change in trend.
To trade only correct engulfing candlesticks, there are two requirements
- The candle’s body must not exceed 75% of the total size.
- The bullish engulfing candle should be located at the swing high.
Bullish Engulfing: Information Table
| Features | Explanation |
|---|---|
| Number of Candlesticks | 2 |
| Prediction | Bullish trend reversal |
| Prior Trend | Bearish trend |
| Counter Pattern | bearish engulfing |
Bearish engulfing candles
The bearish-engulfing candle signifies that there has been a reversal in the bullish trend. This means that the price of candlestick will fall. (Red color). It will also make a higher high than the opening price and a lower low compared to the previous candle.
All tips and tricks for trading only the correct engulfing candles will be the same as those discussed in the section on bullish engulfing candles.
These are the criteria for a profitable bearish-engulfing candlestick
- Only 75% must be used for the Body of Bearish Engulfing Candle.
- The location of the bearish engulfing candles must be at a swing high point.
Engulfing Pattern
The first and most important reason for price action in technical analysis is the engulfing pattern. Every pattern has an engulfing point at some time in price action.
Every price action pattern has an engulfing pattern. You don’t need to change timeframes. Zoom out to see the chart. Higher timeframe and Lower timeframe can both be analyzed using a single timeframe.
What is forex engulfing?
Engulfing is a complete cover-up. It means that either sellers have completely covered the forces of buyers, and the price is now in their hands, or buyers have completely covered the forces of sellers, so the price is now in their hands.
You will see some patterns that are engulfing patterns. You will find Quasimodo patterns, pinbar patterns, head, and shoulders patterns, double-top pattern, three-top pattern and many other patterns. Take a look at the images below for a better understanding.
The Quasimodo pattern shows the green wave that engulfs the red wave. This indicates a trend reversal.
Pinbar also comes from the engulfing pattern.
The head and shoulder pattern shows that price rises first, then falls, and then engulfs the origin of the price. This creates an engulfing effect.
It is also the same for a double-top, two-bottom and triple top three-bottom pattern.
This is the power-of-engulfing pattern, and it is the most important in price action trading.
There is no Price Action without an Engulfing Pattern.
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