Engulfing Candlesticks … More Important Than You Think!


I read in one of the articles that in order for the euro to move against the dollar by one point you have to have a trading volume worth 50 million dollars, so can you imagine dear reader how much money are in a single Engulfing Candlestick.

Engulfing pattern is formed when a large candlestick eclipses or engulfs the previous candlestick, noting that the former candle must have a different color from the engulfing candlestick. For instance, if the large candlestick is red, the previous smaller one must be green (bearish engulfing).

The importance of the engulfing candlestick is that it clearly indicates millions of dollars have entered the market now so you cannot ignore it, whether it is in your direction or opposite to it.  

Misuse of Engulfing Candlestick

Some people imagine that the larger the engulfing candlestick. the better. This may be true, but not all the time because the very large engulfing candlestick may not be suitable for trading, and these candles are often used to manipulate beginners.

I remember very well that I was fooled more than once. This happens when the price accelerates in a certain direction and I fear that I lose the opportunity to open a buy position (if the acceleration is positive) and at this moment the price falls, the stop loss would very large, equal to the size of the engulfing candlestick, and l lose a trading deal that I had thought it was guaranteed.

Instead, you have to look for a medium sized engulfing candlestick and you should know that any candlestick that eclipses the previous candle, even by a single point, is considered an engulfing candlestick in the same direction, and this increases the chance of success and reduces the stop loss as much as possible.

One of the effective ways to trade an engulfing candlestick is to follow it on a weekly timeframe in order to know the general trend of the pair and not to open a trading position opposite to the weekly engulfing candlestick.

Look at the following chart, it shows my point of view as a separate strategy where you can determine the direction, enter only with the engulfing candlestick rather than against it.

The GBPUSD pair

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