MUST READ:  Candlestick patterns – 21 easy patterns ( and what they mean )

Bullish engulfing pattern.

What is it?

Engulfing patterns happen when the real body of a price candle covers or engulfs the real body of one or more of the preceding candles.
The more candles that the engulfing candle covers the more powerful the following move will likely be.
There are two types. Bullish and bearish.
The bullish engulfing pattern signals a bullish rise ahead and the opposite is true for the bearish engulfing candle.
In the above chart I have circled the bullish engulfing candles which led to price rises immediately after.

How do I trade it?
Well, the bullish engulfing pattern is a precursor to a large upward move.
So, when you see an the engulfing candle taking shape you should wait for the following candle and then open your position.
Your stop should be placed at the low of the engulfing candle.

Bearish engulfing pattern.

What is it?
The bearish engulfing pattern signals a bearish price decline ahead.
In the above chart I have circled the bearish engulfing candles which led to price declines immediately after.
Again, the more candles that the engulfing candle covers the more powerful the following move will likely be.

How do I trade it?
It is the same principle as the bullish pattern, just the flip side of the coin!
The bearish engulfing pattern is also a precursor to a large decline.
So, when you see an the engulfing candle taking shape you should wait for the following candle and then open your position.
Your stop should be placed at the high of the engulfing candle.

 

Long shadow pattern.

What is it?
The ‘long shadow refers to the length of the line from the closing price on a candle to the high or low price of that particular candle.
The ‘shadow’ should be at least twice the length of the real body of the candle.
These shadows tend to occur at turning points.
And they tend to lead to large price moves!
How do I trade it?
As with the rest of the candle stick patterns, we wait for the long shadow candle to close and we place our trade at the open of the next candle.
Your stop should again be placed at the extreme high or low of the shadow candle and trailed to follow the trend.

Hammer patterns.

What is it?
A candle forms a ‘hammer’ when the real body of the candle sits at one end of the candle leaving a head and handle!
Again these candles tend to form at price reversals giving a strong signal for traders.

How do I trade it?
Its the same trick!
We wait for the long hammer candle to close and we place our trade at the open of the next candle.
Your stop should again be placed at the extreme high or low of the hammer candle.
and again trailed to follow the trend.

 

Warning! This E-Book improve your trading dramatically

9 Powerful Forex Trading Strategies

42 pages E-Book teaching you the most successful Trading Strategies

Strategies include Momentum and Role Reversal, Heikin-Ashi, RSI and Moving Average Crossover, Candlesticks and more. This E-Book contains step-by-step instructions, examples to teach you how to trade profitably.

button-1

See other Trading Strategies