Forex Engulfing Trading Strategy – How to trade it?

Do you want to know more about candlestick patterns and engulfing candles? Watch our latest video to find out how to trade profitably using an engulfing candle trading strategy.

Engulfing Trading Strategy – A simple explanation

Quite often, traders will look for a sign of momentum to get involved in a market. And engulfing candle signifies that traders have made up their mind as to which direction the market should go, and this system tries to jump on that move and continue to go in the same direction. On the attached USD/JPY pair, you can see that the recent high on the daily chart had a bearish engulfing candle. The engulfing candle is simply a candle that is both higher and lower than the previous candle. In this case, it was a very bearish candle, and that means that downward pressure was mounting.

By selling at the break of the candle, you are taking advantage of a reversal of overall momentum. Quite often, people will play stop losses on the other side of the engulfing candle, as if we turned around to break above the top of it, that would be a very significant swing in momentum back to the initial move. However, if we continue to break down from there, the trader needs to look for at least the same size move in profit as they were willing to risk. Quite often, you can get much more.

The currency markets are about trading with the overall momentum, and by attention to engulfing candles, you can see when everything is changing very rapidly, and take advantage of that momentum to increase your profitability. It should be noted that this method it tends to work better when used with support and resistance as well, giving you a secondary reason to be involved in the trade. In this particular case, the engulfing candle on the daily chart formed a bit of a “double top.”