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Engulfing Candles

Engulfing Candles

2010-01-06 00:15:00
Richard Krivo, Trading Instructor
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This would not be an example of a bearish engulfing pattern. In order for a candle to be considered engulfing, it must completely "engulf", "swallow up" the candle preceding it. (This would also be true for a bullish engulfing candle.)The bearish (red) candle that was circled on your chart does not engulf the preceeding candle.

On the chart below you will find three examples of bearish engulfing candles and one example of a bullish engulfing candle.

Chart 1 05 10 B

Regarding entry and stop placement, if this were a bearish engulfing pattern, the trade would be entered at the open of the candle immediately after the bearish engulfing candle. The stop would be placed as indicated by the red line labeled Stop on the chart below. The limit would be placed at twice the distance of the stop from the entry. For example, if the stop were 100 pips above the entry, our limit would be at 200 pips below our entry. This would ensure that we have a 1:2 Risk Reward Ratio in place on the trade.

 

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