1. Choose altcoins during a bull market and buy BTC during a bear market. This is my unique secret!
2. Pay close attention to coins with increased volume at the bottom. This is a signal to start. Don't miss it!
3. When an upward trending coin retraces to an important moving average, it is the best time to buy. Remember to seize the opportunity!
4. Don't trade frequently. It is enough to make a few big trend trades a year. Greed can be very costly!
5. Be sure to control your position well. Never be fully invested. Leave yourself room to maneuver so that you can respond to market changes!
6. Don't add to losing garbage coins. It is wise to stop losses in a timely manner. Don't let yourself get stuck deeper!
7. News can only be used as a reference. Don't blindly follow the trend and yolo, otherwise you will be responsible for the consequences!
8. Never touch unfamiliar coins. Focus on the track you are familiar with to ensure success!
9. Don't be swayed by market sentiment. Stay calm and rational so that you can make the right decisions!
10. Altcoins will definitely fall after a big rise; they may not necessarily rise after a big fall. Selection is very important, so be sure to keep your eyes open!
11. When most people are optimistic, it is often when risks are coming. Remember this and don't let yourself become a bagholder!
12. Learn to stay out of the market and wait for the market to give a clear signal before entering, so as to avoid unnecessary losses!
13. Don't follow the trend and speculate on hot topics. Hot topics often come and go quickly. Don't let yourself get trapped!
14. Have your own trading system and strictly execute it to maintain stable profits!
15. Investing is a long race. Maintaining a good心态 (mentality) is the key to laughing last. Don't give up halfway!
16. Investing does not guarantee profit. There is a high probability of losing money. Therefore, try to invest with spare money. Investing with spare money will keep you in a good mindset, and the probability of winning will increase. Remember this and don't let yourself fall into trouble because of investing!
I have practiced this method in tens of thousands of transactions, with a success rate of up to 98%! Last month, March, I also earned 120,000 U in one month!
Engulfing Pattern
There are two types: bullish and bearish.
The engulfing candlestick pattern consists of two candlesticks, so it belongs to the category of double candlestick patterns.
The structure of this pattern is very easy to identify. On the chart, the first candlestick is completely engulfed by the next candlestick. Remember, to form a valid engulfing pattern, the body of the first candlestick should be completely contained within the body of the next candlestick. See the engulfing pattern example in the figure below:
This is how the engulfing pattern appears on the chart. As mentioned above, the first bearish candlestick (red) is completely engulfed by the body of the next bullish candlestick (green). Similarly, the reverse is also possible. The engulfed candlestick can be bullish, and the engulfing candlestick can be bearish.
Potential of Engulfing Candlestick Patterns
The engulfing candlestick pattern has a strong reversal signal. If a engulfing pattern forms during an uptrend, this sends us a signal that a top may be forming.
Conversely, if an engulfing pattern appears during a decline, this indicates that the price movement may be forming a bottom.
Types of Engulfing Patterns
As mentioned earlier, there are two types of engulfing patterns, namely the bullish engulfing pattern and the bearish engulfing pattern. Now let's understand these two types of engulfing patterns separately:
Bullish Engulfing
A bullish engulfing pattern usually appears in a bearish trend. It starts with a bearish candlestick on the chart, which is then completely engulfed by the body of the next bullish candlestick. This pattern creates bullish potential on the chart and may reverse the current bearish trend. See the bullish engulfing candlestick pattern in the figure below:
Note that the first candlestick in the pattern is bearish and is completely contained by the body of the next bullish candlestick. This forms a bullish engulfing pattern, suggesting a trend reversal. An effective bullish engulfing pattern means that a bullish move may begin after the recent decline.
Bearish Engulfing
The bearish engulfing pattern functions exactly the opposite of the bullish engulfing pattern. The bearish engulfing pattern usually appears in an upward trend. The pattern starts with a bullish candlestick, which is then completely engulfed by the body of the next bearish candlestick. This pattern creates a strong price reversal potential on the chart, and the current bullish trend may turn into a new bearish trend. Now look at the bearish engulfing pattern in the figure below:
In the figure above, the engulfed candlestick is bullish (green), and the engulfing candlestick is bearish (red). The body of the second candlestick completely contains the first candlestick, completing the bearish engulfing pattern on the chart. The bearish engulfing pattern may indicate the start of a new downward trend on the chart.
Engulfing Pattern Confirmation
The confirmation of the engulfing pattern appears on the candlestick after the pattern. It needs to break through the body level of the engulfing candlestick to confirm the validity of the pattern.
A valid bullish engulfing pattern is followed by a third candlestick (bullish) that breaks upward through the body of the engulfing candlestick. A valid bearish engulfing pattern is followed by a third candlestick (bearish) that breaks downward through the body of the engulfing candlestick. As shown in the figure below, this is how engulfing confirmation appears on the chart:
Attention! This time we saw a confirmation candlestick after the pattern. When you see this candlestick behavior after an engulfing pattern, this will confirm the validity of the pattern.
Engulfing Pattern Trading Strategies
We have explored the structure of the engulfing pattern in detail. Now let's discuss the trading strategies associated with this chart pattern.
Trading Entry for Engulfing Patterns
The entry point for trading is usually when the engulfing pattern is confirmed. This is the third candlestick (i.e., the candlestick after the engulfing candlestick), which should break through the body of the engulfing candlestick and move in the expected direction. When the candlestick closes outside of this level, we confirm the pattern and can open the corresponding trade.
If the engulfing pattern is bearish, the price breakout should be below the body of the engulfing candlestick. In this case, we should prepare to go short. If the engulfing pattern is bullish, the price breakout should be above the body of the engulfing candlestick. This means we should go long.
Stop-loss Settings for Engulfing Patterns
Without a doubt, controlling risk should be your top consideration when trading. Therefore, you must set a stop loss for your engulfing trades.
The best stop-loss location in engulfing trades is outside the limits of the engulfing pattern. If the engulfing pattern is bullish, the stop loss should be placed below the lower shadow of the engulfing candlestick. If the engulfing pattern is bearish, the stop loss should be placed above the upper shadow of the engulfing candlestick.
The figure above shows how to set a stop loss when trading bullish and bearish engulfing patterns. If the price fails to move in the expected direction and triggers the stop loss, this will prove that the trading assumption is wrong, while protecting your funds from minimal losses.
Profit-taking settings for engulfing patterns
A rule of thumb is that engulfing trades should be held at least until the price fluctuation is equal to the size of the pattern. This means that the minimum profit target pursued from the engulfing pattern should be equal to the distance between the upper and lower shadows of the engulfing candlestick.
When the price movement reaches this distance, you can choose to close all positions or close some positions. If you choose to continue holding some positions, you need to carefully observe the price movement to look for potential exit opportunities. This includes support/resistance breakthroughs and trend or channel breakthroughs. Chart and candlestick patterns are also very important here. If you find chart/candlestick patterns that are contrary to the current trade, you may need to close the position.
Engulfing Patterns and Price Action Strategies
Now let's combine engulfing patterns to illustrate price action-based trading strategies. See the figure below:
The figure above is an hourly chart of GBP/USD (British Pound/US Dollar) from January 1 to January 5, 2016. The figure depicts a bearish engulfing pattern and its trading rules.
The chart starts with a price increase, marked by the green arrow in the figure. You will notice that the price movement only formed bullish candlesticks. Suddenly, we see a relatively large bearish candlestick that completely engulfs the previous candlestick. This confirms the presence of a bearish engulfing pattern on the chart.
However, in this case, we need a confirmation candlestick before we can consider opening a position. The next candlestick on the chart is bearish again, closing below the body of the engulfing candlestick. This is the confirmation required to trade based on the bearish engulfing pattern. The stop loss for this trade should be placed above the upper shadow of the engulfing candlestick, as shown in the figure above.
The yellow arrows in the figure show the size of the pattern and how to apply the minimum profit target on the chart. This target is completed in the next candlestick that appears after the engulfing confirmation.
This trade can be extended to get more profit. You can use price action rules to determine the final exit signal. You will notice that the GBP/USD price formed two more large bearish candlesticks on the chart, which would double the trade profit. However, the next candlestick on the chart is a Hammer reversal pattern, also known as Pin
Bar, which has strong bullish potential. When the Hammer pattern is confirmed, the trade should be closed. As you can see, the next candlestick is bullish and breaks through the upper level of the Hammer pattern. This confirms the validity of the Hammer reversal and generates an exit signal to close the short position. The bearish engulfing trade should be closed when the bullish candlestick after the Hammer pattern closes, as shown by the second red arrow in the figure above.
This example shows how price action rules can help find the most suitable exit points on the chart.
Engulfing Patterns and Support and Resistance
Another effective way to trade engulfing patterns and price action is to find the pattern at key support and resistance levels.
If the price is close to the resistance area, and a bearish engulfing pattern appears on the chart, this will create a very strong bearish potential on the chart. Conversely, if the price is close to the support level, and a bullish engulfing pattern appears on the chart, this will create a very strong bullish potential on the chart.
These situations provide a high probability of success for trading. Many times, when you enter in the right timing in the context of technical confluence, you can enter an emerging trend reversal early. Now let's see how to combine engulfing patterns with support and resistance levels:
The figure above is an hourly chart of USD/CHF (US Dollar/Swiss Franc) from February 19 to February 24, 2016. The figure shows another bearish engulfing trade that occurred after the price was at a psychological resistance level.
The black horizontal line in the figure is the very strong psychological resistance level of 1.0000 parity ratio for USD/CHF. After a strong price increase, USD/CHF encountered this resistance level and subsequently tested it twice more. During the third test of this resistance level, the price formed a relatively large bearish candlestick that engulfed the previous bullish candlestick. This formed a bearish engulfing pattern on the chart.
The confirmation of the bearish engulfing appears on the next candlestick, which is bearish and breaks through the lower side of the engulfing candlestick's body. The close of the confirmation candlestick provides a signal to enter short.
The stop loss should be placed above the upper shadow of the engulfing candlestick, slightly above 1.0000.
After that, the price started to fall. Subsequently, the minimum profit target of the pattern was achieved (shown by the yellow arrow). You can close part of the position here and keep part of the position in the hope that the price will fall further.
Note that USD/CHF continued to form lower highs and lower lows during the decline, which provided confidence in the downward trend. Suddenly, the price movement started to consolidate, and we marked the upper limit of the range with a thin black horizontal line. Once the price breaks through this resistance and closes above it, the trade should be closed immediately. As you can see, this forms a higher top on the chart, meaning that the bearish trend may be interrupted.
Combining support and resistance levels with engulfing patterns is a very excellent price action-based trading method.
Let's look at another example of a bullish engulfing pattern in EUR/USD: As you can see, a bullish engulfing candlestick pattern exists, indicating a potential buying opportunity.
The above transaction is executed through the following steps:
1. A bullish engulfing pattern has been identified.
2. Execute a buy at the 1.1301 price level after confirming the pattern.
3. Based on a 1:2 risk-reward ratio, the profit target is set at 1.1347.
4. The stop loss is located at 1.1278 below the lower shadow of the second bullish candlestick.
Engulfing Candlestick Pattern: Pros and Cons
Bullish and bearish engulfing candlestick patterns each have their advantages and disadvantages, as shown in the figure below:
Summary
The engulfing candlestick pattern is a double candlestick pattern. It consists of two candlesticks, where the second candlestick completely engulfs the previous candlestick, including the shadows. The engulfing candlestick pattern has strong reversal potential on the chart. We identify two types of engulfing candlestick patterns:
◎ Bearish Engulfing: Can be found at the end of an uptrend. It starts with a bullish candlestick, followed by a larger bearish candlestick whose body completely engulfs the first candlestick in the pattern. This creates bearish (reversal) potential on the chart.
◎ Bullish Engulfing: Can be found at the end of a downtrend. It starts with a bearish candlestick, followed by a larger bullish candlestick whose body completely engulfs the first candlestick in the pattern. This creates bullish (reversal) potential on the chart.
The engulfing pattern confirmation appears on the next candlestick on the chart:
◎ If the engulfing pattern is bullish, the next candlestick should be bullish and its closing price should be higher than the body of the engulfing candlestick.
◎ If the engulfing pattern is bearish, the next candlestick should be bearish and its closing price should be lower than the body of the engulfing candlestick.
Here are three basic engulfing trading rules:
◎ Open a trade when the price closes on the confirmation candlestick.
◎ Set stop-loss orders outside the opposite side of the engulfing pattern.
◎ Maintain a minimum price movement for the trade equal to the size of the engulfing pattern, or use price action rules to extend the trade.
A high-probability price action method for trading bullish and bearish engulfing patterns is to look for the pattern to appear at important support and resistance levels.