Experts explained how to trade engulfing candle in Forex Trading

Engulfing candle patterns are highly regarded in Forex trading due to their potential for identifying trend reversals. Whether you are a beginner or an experienced trader, understanding how to trade engulfing candle can greatly enhance your trading strategies and improve your overall profitability. 

Traders Union experts delve into the intricacies of trading bullish and bearish engulfing patterns, explore their reliability, discuss effective ways to use them with various indicators, and provide practical steps to trade Forex using engulfing patterns.

What is an Engulfing Candle?

Engulfing candles are powerful reversal patterns formed by two consecutive candlesticks. The second candlestick completely engulfs the prior one, indicating a potential shift in market sentiment. There are two types of engulfing candles:

1. Bullish Candle: The bullish candle pattern materializes when a smaller candle with a bearish sentiment is followed by a larger candle exhibiting bullish sentiment, completely engulfing the previous bearish candle. This pattern signifies a potential shift from a downtrend to an uptrend, offering traders an opportunity for reversal and upward movement in the market.
2. Bearish Candle: Conversely, the bearish candle pattern represents the opposite of its bullish counterpart. It forms when a smaller candle with a bullish sentiment is succeeded by a larger candle with a bearish sentiment, engulfing the preceding bullish candle. This pattern indicates a potential reversal from an uptrend to a downtrend, suggesting that traders should be cautious and consider selling positions to align with the downward market movement.

Is the Engulfing Candle Pattern Reliable?

Engulfing candle patterns possess several strengths, making them reliable indicators for trend reversals. Traders Union experts offer to consider the following key points:

• Clear and easily identifiable pattern.
• Provides early signals of potential trend reversals.
• Offers high probability when combined with other technical analysis tools.
• Works well across various timeframes and currency pairs.
• It can be used in both intraday and long-term trading strategies.

How to Use Engulfing Candle Patterns?

Combining them with other indicators is beneficial to maximize the effectiveness of engulfing candle patterns. Here are three popular indicators that can complement the analysis of engulfing candles:

1. MACD (Moving Average Convergence Divergence): Use MACD to confirm the trend’s strength and identify potential entry and exit points.
2. Moving Averages: Plot moving averages on your chart to determine the overall trend. Engulfing candles that align with the direction of the moving averages offer stronger signals.
3. Parabolic SAR (Stop and Reverse): This indicator helps identify potential stop-loss levels and trailing stops to protect your profits.

How to Trade Forex Using Engulfing Patterns

Traders Union reveals these steps to incorporate engulfing candle patterns into your Forex trading strategy:

1. Identify the prevailing trend using moving averages or other trend-following indicators.
2. Look for engulfing candle patterns that align with the trend. A bullish engulfing pattern in a downtrend or a bearish engulfing pattern in an uptrend indicates a potential reversal.
3. Confirm the pattern with other technical indicators, such as the MACD and Parabolic SAR.
4. Place a stop-loss order below the low of a bullish engulfing candle or above the high of a bearish candle to manage risk.
5. Set a take-profit level based on your risk-reward ratio, or use trailing stop-loss orders to secure profits as the trade progresses.

Best Forex Brokers

Selecting a reputable Forex broker is crucial for a seamless trading experience when trading engulfing candle patterns. Traders Union offers three highly regarded brokers to consider:

1. RoboForex: Offers a wide range of trading instruments, competitive spreads, and advanced trading platforms.
2. EXNESS Group: Known for its low spreads, fast execution, and comprehensive educational resources for traders of all levels.
3. Tickmill: Provides competitive trading conditions, a diverse product range, and excellent customer support.

Conclusion

Engulfing candle patterns are powerful tools for identifying trend reversals in Forex trading. By understanding how to trade bullish and bearish engulfing patterns, considering their reliability, and using them with other indicators, you can enhance your trading strategy and increase your chances of success. 

Traders Union suggests remembering to choose a trusted Forex broker to ensure a secure and efficient trading environment. Start incorporating engulfing candles into your analysis and maximize their potential to improve your trading results.