Price Action: Conquer by Engulfing

Turn the tides of Forex war to your favor.


like Pacman, Engulfing entirely eats the previous bar

Hi everyone!


Welcome to another Price Action article. For those, who are still new to trading, Price Action is the closest thing to the holy grail.


And if you at least know this, you increase your chances of winning a hundred-fold.


Quick review—Price Action is analyzing the market’s movement through the relationship and patterns of the bars (or candles, depends on what you’re using).


Read related article Price Action: Busted by Pin Bars


I’ve only discussed one pattern so far, the Pin Bars. Well, it’s the easiest to deal with especially in the beginning of anyone’s Forex journey. But of course, we’re about learning and improving here.


So, I’ll share with you another Price Action, which I have to say my TOP 1 Price Action pattern. When it happens, the market is highly in your favor.


It’s called the Engulfing.

It means that it OVERCOMES or swallows the previous bar entirely.


The psychology behind this movement is that, the buyers have dominated over the sellers in case of a Bullish engulfing (thus, the upward movement). Alternatively, the sellers won over the buyers in case of a Bearish engulfing (thus, the downward movement).


CATCHING THE BIG MOVEMENT


When using Price Action, it’s common to wait for the D1 bar to finish and see what it has formed (if it formed a Pin Bar, for example) before you place an order. You may do that as well in Engulfing. HOWEVER, usually the movement of an Engulfing is so big that the ratio isn’t worth it or would likely retrace and break your heart first.


Therefore, it’s best to get ready before it happens.

That said, I’ll share with you how I ride Engulfings with less drama.


1. Observe Critical Zones


"BUY at Support. SELL at Resistance."

The market will test these critical zones and try to break them. This is where the buyers and the sellers compete for dominance. So, when price approaches a horizontal or a trendline, remember its expected behavior. BUY at Support; SELL at Resistance.


Read related article Technical Analysis: How to Slice Charts


2. Break the Previous’ High/Low FIRST

As the market tries to break horizontals and/or trendlines, see if the price goes to the high/low of the previous bar FIRST. The other way of knowing if the actual high or low was hit FIRST is to see the H4 timeframe.


That’s when you place an order. You may also use an app (like Call Levels) to alert you when the price does so.


Notice I keep on emphasizing the high/low FIRST.

Because that's when you know it's legit Engulfing.


3. Place a STOP Order

Below are the examples of how Engulfings look like. You'd see that it actually overcomes the previous bar entirely. Of all the ways to trade Engulfings, I think this is the optimal. I'm linking an old article for newbies to review the types of orders.


Read related article The "Buy Low, Sell High" Principle


ON BULLISH ENGULFING. Price tried to break Support FIRST. Place BUY Stop at PrevBar's HIGH.

When the price is at Support, assume that a Bullish Engulfing will happen:

What to do to a potential UPWARD movement? BUY.

  • Set an alert or See the price going over the previous bar’s Low FIRST.

  • Place a BUY Stop on the previous bar’s High.

  • While your Stop-loss at least at current bar’s Low. Target is at least 1:1 ratio.


Price tried to break Resistance (Down trendline) first. Place SELL Stop at PrevBar's Low.

When the price is at Resistance, assume that a Bearish Engulfing will happen:

What to do to a potential DOWNWARD movement? SELL.

  • Set an alert or See the price going over the previous bar’s High FIRST.

  • Place a SELL Stop on the previous bar’s Low.

  • While your Stop-loss at least at current bar’s High. Target is at least 1:1 ratio.


When your order gets triggered, you may Hold it ‘til Target. Or have the option to put the Stop to positive the next day.


When it doesn’t, then no worries. The price must have broken out anyway. Just wait for another sensible Price Action as basis of your entry to the breakout direction.


Happy trading everyone!

Sincerely,

@marilesaca || Trading Kitten :3


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DISCLAIMER: As with any financial matters, PLEASE EXERCISE UTMOST CAUTION AND DISCRETION. Trading and Investing in the Forex market has risks that may not be suitable for everyone. An investor must always consider one's risk appetite and give due diligence in every financial opportunity encountered. The information shared and presented in this site are the strategies and tools that worked for the authors over several experimentation. It may OR may not work for you. Any loss experienced is solely accountable to the investor, as he/she is the account owner. Thus, risk only what you can afford. We encourage you to find your own style instead of blindly following trades. We only seek to guide while entertaining you in your Forex journey.

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