What is The Engulfing Candlestick?
The Engulfing Candlestick helps to define the end of a retracement and its appearance is the complete opposite of the Harami pattern.
The Engulfing Candlestick
With an Engulfing Candlestick, the second candle body fully engulfs the first candle body.
This is a strong signal that the retracement of the trend is over and continuation will more than likely occur.
How Do We Trade The Engulfing Candlestick?
The Engulfing Candlestick is traded best when the market is in a defined trend.
For example, if the market has been in a downtrend, the appearance of The Engulfing Candlestick could be an indication of the continuation of the trend following a retracement or rise in the market.
In a bullish Harami, we would buy or go long after the completion of the second candle.
In a bearish Harami, we would sell or go short after the completion of the second candle.
Examples
In the example below, we see an example of the Engulfing Candlestick, following a defined uptrend. Our expectation is that there will be a continuation of the trend following the dip in the market.
At this point we would go long just above the second candlestick.
Our SL would be just below the previous support level.
In the example below, we see an example of the Engulfing Candlestick, following a defined uptrend. Our expectation is that there will be a continuation of the trend following the dip in the market.
At this point we would go long just above the second candlestick.
Our SL would be just below the previous support level.
In the example below, we see an example of the Engulfing Candlestick, following a defined downtrend. Our expectation is that there will be a continuation of the trend following the rise in the market.
At this point we would go short just below the second candlestick.
Our SL would be just above the previous resistance level.
NEXT LESSON!
In my next lesson, I will be covering the Piercing Line Candlestick pattern
See you then!