This Trending Engulfing Candlestick Strategy Pattern works even better than the traditional engulfing candle trading strategy.
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Welcome to this tutorial on Trending Engulfing Candlestick Strategy Pattern. This will work for bullish or bearish engulfing candlesticks. Quite often engulfing patterns are taught as reversal patterns to put in highs and lows. I’m going to show you a little variation of that today.
One of the challenges people have is they say, “How do I know if the market’s going to trend, continue the trend or, if it’s going to reverse?”
Trending Engulfing Candlestick Strategy
Let’s look at the video. This market is kind of just meandering sideways here for a while. It moves down, and comes back up, so this is the key. This is the beginning of a new trend, but this whole zone in here is just a sideways market. We have this channel moving sideways, and we don’t put in a lower low, but we do put in a lower high. This would be the very beginning of a potential downtrend, and with that lower high right there.
Here’s the challenge. Normally, people like to see both a lower low, and a lower high, and we don’t really get that. These lows are all coming in about the same place, and that’s actually awesome. That means you’re about to get in early, probably earlier than most people. This is what I call trading inside of consolidation. Most people wait for the breakout below the low of this range, and that’s okay too. One of the hallmarks of professional trading is we get in before the amateurs. The earlier you get in, the bigger reward you have. If you get in later, you’ve left that money behind you.
How can we get in before the amateurs? We’ve got to get some sort of signal they may not be looking at. What we’re going to look at is an engulfing pattern to show us a continuation in a new trend. We’re going to mix it up a little bit and look for it inside of this consolidation zone, and there is our little engulfing pattern. It’s not your typical engulfing pattern because the typical engulfing pattern is a 2 bar pattern. For trend continuation, we’re looking for it to engulf more than 2 bars.
Trending Engulfing Candlestick Pattern
So let’s look at this red bar. Wow, it engulfs six bars! Looking at the real bodies of the bars, the colored part, the green or the red, because that’s what’s significant here. It’s not really a big move down, it’s still within consolidation, and we get a little retrace up. First of all, lower high doesn’t get back up here to the top of the range, so that’s that’s part of the setup as well. We get some strength moving down at the bottom of the range, but still within the range, and then weakness up.
Now, we get a big one that opens up here, closes down here, and it covers the previous six bars. Engulfs them all in one time-frame, whether it’s a daily chart, weekly chart, monthly chart, a two-minute chart, one bar has now reversed. It’s wiping out the price action of the six previous bars all in one bar. That’s a lot of energy built into just one time interval, or one time frame. That’s what I call a trending engulfing pattern, as opposed to a reversal, and that’s what can help us get into these breakouts.
They tend to go into expansion, because the market has a cycle of expansion and contraction. I like to scan for these contraction patterns, or just visibly watch them, and look for the breakout. You get a really big move out, which is the norm. There’s narrow range for a while, and then big range for a while, and back to a narrow range, and then a big range. The ebb and flow of volatility cycles.
I hope you found this helpful, and I’m gonna do a couple more videos on engulfing patterns, so this is Part One. If you have any questions, or comments, feel free to leave them in the comment section below. I’ll take them into consideration for future videos. That’s what I’m here to do is to help solve your trading problems.
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