To trade profitably this chart candlestick pattern, you need to respect three important elements:
If you look at any chart, you will notice that there are times where the market is moving clearly in one direction, and times where it is moving sideways.
To be honest, trading the engulfing bar pattern with the trend is the easiest way to make money in the market.
You don’t need to be highly knowledgeable about technical analysis to determine wither the market is trending or not.
Make it stupid simple, if the market is making series of higher highs and higher lows it is about an uptrend market, and if it is making series of lower highs and lower lows it is simply about a downtrend market.
The illustration above shows a clear uptrend, you don’t need to use an indicator to determine whether the market is trending or not, just look at your chart, and try to apply the concept of higher highs and higher lows and vice versa.
When you are analyzing your charts, bear in mind that the markets move in trends, and trading with the trend is the most important element in your technical analysis, there’s no more important than the trend, don’t never try to fight it, or to control it, otherwise you will pay expensively for trying.
You can’t make money under any market conditions no matter how powerful is you’re trading system, you have to be patient enough, and let the market tell you which direction is going to take.
Successful traders say, the trend is your friend, and if you want to master trading the engulfing bar pattern, your first rule is to follow the market direction, in other words, the trend should be your best friend.
When you find a clearly definable uptrend or downtrend, the next step is to identify the most important levels in the market. i mean the most powerful support and resistance.
If prices test a support level and stop, this is an indication that buyers are there, this area is watched by all participants in the market, because it represents a great buying opportunity.
Conversely, if prices test a resistance level and stop in an uptrend, this is a clear signal that selling strength is in the market.
The example below shows how the market participants interact with support and resistance levels:
These levels take different forms such as: trend lines, channels, flags, triangles… and your ability to identify them in your chart will help you find better price levels in the market.
In trending markets, when prices pass through resistance level, that resistance could become support; see the illustration below to understand how to trade the engulfing bar pattern with support and resistance in a bullish or a bearish trend:
There are other technical tools that can help us find the best levels in the market such as: supply and demand areas, moving averages, and Fibonacci retracement ratios.
The signal here is an engulfing bar pattern; you can apply the same rules when trading the inside bar candlestick pattern.
Your ability to identify an engulfing candlestick at a key level in a clear uptrend or downtrend will greatly enhance the probabilities of making a wining trade.
See another example below: