The indicator of the candlesticks combinations (Japanese candlesticks)
Fig.1 The ytg_Japan_Candles indicator
Author: Nikolay Kositsin
Trading the Bullish Engulfing Candle Pattern
Spotting price reversals and continuations through the interpretation of
price action is an important skill for Forex traders to master.
Candlestick analysis can help make this process easier. Candle pattern
interpretation does not only make navigating the market easier, but it
can also be a useful trading tool. With this idea in mind we will focus
on recognizing and trading one of the markets most clear cut price
action signals, the bullish engulfing candle pattern.
What is a bullish engulfing pattern?
A bullish engulfing pattern is a candlestick pattern normally foundafter
a period of downward market pressure. Pictured above we can see that
the bullish engulfing candle pattern is actuallycomprised of two
completed candles! The first candle will normally depict the end of the
currency pairs established weakness. This first candle can come in a
variety of shapes and sizes and will vary from chart to chart.While it
is notdirectly related to the next engulfing pattern, this candle should
denote the end of the markets current decline. Small candles such as
dojis are considered preferable in this position though, as they can
reflect market indecision in the current trend.
The second candle in the pattern is arguably the most important. As seen
above, this candle is expected to stick out from price action and close
as a long blue candle. This large move in price signals a return to a
bullish market bias with newupward price momentum surging towards higher
highs. To be considered a complete bullish engulfing candle pattern,
the high of this blue candle should close well above the high of the
previous candle. The higher this blue candle advances, the stronger our
signal is considered. A new push of upward movement in this position on
the chart, reflects new buyers overtaking the previous strength of the
sellers.This action can be used in conjuncture with an established
uptrend,with buyers looking to enter the market on refreshed strength.
Let’s look at a current example :
Charting the EURUSD
Once you are familiarized with identifying the bullish engulfing candle
pattern it can then readily be applied to your trading. Above is an
excellent example of the pattern in action on a daily EURUSD chart. The
EURUSD is currently in a standing uptrend, beginning with a strong
bullish engulfing candle completed on July 10th. Along the way there
have been price retracements against this now mature trend, but we can
see many of these declines have ended in a fresh bullish engulfing
candle. These surges in price have confirmed the resumption of the
broader trend, while creating new buying opportunities.
Currently, this scenario may be playing out yet again. Highlighted in
green, there is another potential bullish engulfing pattern forming on
the EURUSD Daily chart. Traders will be watching this candle for a
confirmation to signal the resumption of the bull trend after last
week’s decline. If the price of the EURUSD does remain supported,
traders should take this as a bullish market signal and look for the
pair to move towards higher highs.