Engulfing candlestick pattern is one of the most favorite patterns of price action traders. In this article, we will show you how to use this pattern when trading options in Binomo.
- 1 What is Engulfing candlestick pattern?
- 2 Some types of Engulfing candlestick pattern
- 3 Trading strategies with Engulfing candlestick pattern in Binomo
- 4 Conclusion
What is Engulfing candlestick pattern?
Engulfing is a pattern that includes 2 candlesticks. The second candlestick has the opposite color and the second candlestick’s body is as long as the whole body and shadow of the first candlestick. This pattern often appears at the end of the trend.
This is a very strong sign of the price reversal. As mentioned in the pattern’s name, the second candlestick is the engulfing candlestick that defeats all the effort of the first candlestick. Traders can predict correctly the price action in the future based on this one.
Some types of Engulfing candlestick pattern
Bullish Engulfing candlestick
Bullish Engulfing is a pattern that appears at the end of a downtrend. It signs the reversal from downtrend to uptrend.
Bullish Engulfing includes 2 candlesticks:
• 1st candlestick: a red candlestick
• 2nd candlestick: a large green candlestick that overlaps the 1st one.
Bearish Engulfing candlestick
Contrary to Bullish Engulfing, Bearish Engulfing pattern often appears at the end of an upward trend. It signs the decrease of the price in the market
Bearish Engulfing pattern includes 2 candlesticks:
• 1st candlestick: a green candlestick.
• 2nd candlestick: a big red candlestick that overlaps the 1st candlestick.
In Binomo, Engulfing pattern often appears at the end of the trend. This pattern shows the last action of the price in the old trend. When the engulfing candlestick appears, the price surely reverse. This is a good sign to open a trade
Trading strategies with Engulfing candlestick pattern in Binomo
Although Engulfing pattern is an effective sign, you need to use it along with other reversal indicators for good entry points. Below are the examples
Strategy 1: Combine with support and resistance
Requirement: Japanese 5-minute candlestick chart, 15-minute expiration time or more.
How to trade = The price tests the level + Engulfing pattern.
Explain: The level (support/resistance) is where the price has strong action. If the engulfing pattern appears, the reversal of the price is very likely to happen.
UP = Bullish Engulfing pattern + Support.
DOWN = Bearish Engulfling + Resistance.
Strategy 2: Combine with SMA30
Requirement: 5-minute candlestick chart + SMA30, from 15-minute expiration time.
How to trade = The price in the trend tests SMA30 + Engulfing pattern.
Explanation: When the price is in the trend, SMA30 plays the part as a dynamic level. The price tests this level and creates an Engulfing pattern. This means that the trend continues and you can trade following the trend.
UP= uptrend + The price cuts SMA30 from above + Bullish Engulfing pattern.
DOWN= downtrend + The price cuts SMA30 from below + Bearish Engulfing pattern.
Engulfing candlestick pattern is popularly used in trading. This is a strong sign of price reversal. In the next articles, we will tell you more about this pattern. You can try using it by creating a demo account in Binomo. Thank you for your time.