Trading with the trend is one of the most advantageous things a trader learns to do. Using an engulfing candle day trading strategy is one way to get into trending moves just as momentum is picking up.
The engulfing candle trading strategy works best when used in conjunction with a trend. The first step in applying the strategy is to determine the dominant trend direction, and thus the direction we will trade in.
An uptrend is defined as higher swing highs and higher swing lows in price. Prices move in waves, advancing, pulling back and then advancing again. In an uptrend the advancing waves are larger than the pullbacks, creating overall progress higher. During an uptrend, only take long positions (buy).
A downtrend is defined as lower swing lows and lower swing highs in price. During a downtrend the declining price waves are larger than the pullbacks higher, creating overall progress lower. During a downtrend, only take short positions.
- A high probability price action approach for trading bullish and bearish Engulfing patterns is to look for the pattern to appear at important support and resistance levels.
- The best place for a stop loss order in an Engulfing trade is beyond the Engulfing pattern extreme. This would mean that if the Engulfing setup is bullish, the Stop Loss order should be placed under the lower candlewick of the engulfing candle. If the Engulfing setup is bearish, then the Stop Loss order should be located above the upper candlewick of the engulfing candle.
Wait for a Pullback:
Once the trend is established, wait for a pullback. If there is no trend, or it is unclear, don't utilize this strategy.
Waiting for a pullback means your getting advantageous pricing for the next wave of the trend, when and if it unfolds.
What is the first target?
The engulfing candle trading strategy works best when used in conjunction with a trend. The first step in applying the strategy is to determine the dominant trend direction, and thus the direction we will trade in.
An uptrend is defined as higher swing highs and higher swing lows in price. Prices move in waves, advancing, pulling back and then advancing again. In an uptrend the advancing waves are larger than the pullbacks, creating overall progress higher. During an uptrend, only take long positions (buy).
A downtrend is defined as lower swing lows and lower swing highs in price. During a downtrend the declining price waves are larger than the pullbacks higher, creating overall progress lower. During a downtrend, only take short positions.
- A high probability price action approach for trading bullish and bearish Engulfing patterns is to look for the pattern to appear at important support and resistance levels.
- The best place for a stop loss order in an Engulfing trade is beyond the Engulfing pattern extreme. This would mean that if the Engulfing setup is bullish, the Stop Loss order should be placed under the lower candlewick of the engulfing candle. If the Engulfing setup is bearish, then the Stop Loss order should be located above the upper candlewick of the engulfing candle.
Wait for a Pullback:
Once the trend is established, wait for a pullback. If there is no trend, or it is unclear, don't utilize this strategy.
Waiting for a pullback means your getting advantageous pricing for the next wave of the trend, when and if it unfolds.
What is the first target?
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