A Brief History Of The Candlestick
Candlesticks were developed by Japanese rice traders nearly 300 years ago.
There are a number of different candlestick patterns which are worth keeping an eye out for, but since we haven’t got 300 years, we’re going to have a look at just one of the top candlesticks patterns for now, which should set you off on the right track.
Introducing The Engulfing Pattern
So say hello to the Engulfing Pattern, which is when the second candlestick ‘engulfs’ the previous candlestick in the opposite direction.
This shows a pure rejection of the previous price action and is a definite sign that the market did not take kindly to the previous move. The engulfing pattern can therefore be both a Bearish reversal signal (if spotted at the top of an uptrend) or a Bullish one (if at the bottom of a downtrend).
Bullish Engulfing
A Bullish Engulfing candlestick pattern is when an initial downward candlestick (close lower than open) is immediately followed by an upward (close higher than open) candlestick that is bigger than it, or entirely engulfs it, that is to say the low is equal to or lower than the previous low, the high is higher than the previous high, and the close is higher than the previous open.
Take a look at these charts to help you better understand what we’re talking about.
This essentially means that from a supply and demand point of view, the buyers have stepped into the market to ensure it doesn’t drop any lower. This could then result in a push higher as the buyers overwhelm the sellers. Therefore, it can be taken as a Bullish signal.
Bearish Engulfing
The Bearish Signal is simply the opposite of this, as seen below.
This is a great pattern to look out for and is very effective in two forms, at bottoms and tops looking for turning points, which is relatively high risk, or for trend continuation patterns.
Engulfing In A Strategy
A really nice trading strategy is to look for Bullish engulfing signals in uptrends and Bearish engulfing patterns in downtrends, as they can be good signs of trend continuation.
Like Pin Bars, the real trick to this is to look for obvious signals, the ones that really stand out. For instance, if you have an overall downtrend but have recently retraced higher, you will then get a nice Bearish engulfing which could be a great entry to join the trend lower.
As in the Pin Bar strategy, what we want to look for is the ability to place the stop above the Bearish engulfing high or below the Bullish engulfing low, and then look for at least 2:1 risk reward for the trend continuation.
All comments, charts and analysis on this website are purely provided to demonstrate our own personal thoughts and views of the market and should in no way be treated as recommendations or advice. Please do not trade based solely on any information provided within this site, always do your own analysis.
Editors’ Picks
AUD/USD stands firm above 0.6500 with markets bracing for Aussie PPI, US inflation
The Aussie Dollar begins Friday’s Asian session on the right foot against the Greenback after posting gains of 0.33% on Thursday. The AUD/USD advance was sponsored by a United States report showing the economy is growing below estimates while inflation picked up. The pair traded at 0.6518.
EUR/USD faces a minor resistance near at 1.0750
EUR/USD quickly left behind Wednesday’s small downtick and resumed its uptrend north of 1.0700 the figure, always on the back of the persistent sell-off in the US Dollar ahead of key PCE data on Friday.
Gold soars as US economic woes and inflation fears grip investors
Gold prices advanced modestly during Thursday’s North American session, gaining more than 0.5% following the release of crucial economic data from the United States. GDP figures for the first quarter of 2024 missed estimates, increasing speculation that the US Fed could lower borrowing costs.
Bitcoin price continues to get rejected from $65K resistance as SEC delays decision on spot BTC ETF options
Bitcoin (BTC) price has markets in disarray, provoking a broader market crash as it slumped to the $62,000 range on Thursday. Meanwhile, reverberations from spot BTC exchange-traded funds (ETFs) continue to influence the market.
US economy: Slower growth with stronger inflation
The dollar strengthened, and stocks fell after statistical data from the US. The focus was on the preliminary estimate of GDP for the first quarter. Annualised quarterly growth came in at just 1.6%, down from the 2.5% and 3.4% previously forecast.
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