This strategy only takes a few hours a day and focuses on the major pair only. Interested in trying?
Usually, Engulfing Candle is used as a reversal marker and is specifically identified at the peak of the Uptrend or Downtrend valley. But according to Cory Mitchell, the Engulfing Candle can also be used to confirm the continuation of the trend from the end of the pullback. Interestingly, this rule can be used in day trading techniques that are popular with many traders.
But before continuing to discuss how to use the Engulfing Candle in day trading techniques, it’s good to know first the figure of Cory Mitchell who inspired the use of this strategy.
Overview of Cory Mitchell
Starting trading since 2005, Cory Mitchell who holds a Bachelor of Business degree also holds the title Chartered Market Technician (CMT) from the Technical Analyst Association headquartered in New York City. His reputation as a reliable technical analysis was increasingly emphasized by his membership in the Market Technic Association and the Canadian Society of Technical Analysts.
Cory Mitchell has been actively interviewed on various US radios and has been a contributor in various prestigious media such as Investopedia, DailyFX, Forbes Digital, Chart Advisor, Yahoo! Finance, and many more. Besides forex, Cory Mitchell also trades stocks, ETFs, Futures, and Options. Currently, he focuses on developing a career as an independent stock and forex trader, as well as sharing trading knowledge through the vantage point trading site he manages. Well, the technique of day trading with the Elgulfing Candle discussed here is one of the many recipes that he shared on his site.
Step of Day Trading Technique with Engulfing Candle
- There are 2 types of Engulfing Candle, namely Bullish Engulfing and Bearish Engulfing.
- When trading in an Uptrend condition, look for Bullish Engulfing at the end of the pullback. Instead, look for Bearish Engulfing when prices move in a Downtrend.
- Select a small time frame, maximum M15 (15-minute).
- Look for major pair movements that are experiencing an Uptrend or Downtrend. To recognize promising price trending, you can use the Trend Channel.
- Identify the pullback or price correction of the trend. If it is an uptrend, then the pullback occurs when the price moves down for a moment, and vice versa.
- Entry Rules:
- Entry buys when a Bullish Engulfing pattern appears at the end of the pullback, and the movement of the second candle has passed High from the first candle.
- Short entry after a Bearish Engulfing pattern appears at the end of the pullback, and the second candle has passed the first Low candle.
- Stop Loss for entry buy is placed on the second Low candle, while for sell entry can be found on the second High candle.
- Take Profit can be determined through Fibonacci levels to detect the next wave of pullback. If it is difficult to use the tool, Cory Mitchell recommends a Risk / Reward Ratio 1: 1.6 or 1: 2 rule.
Example of the Application of Day Trading with Engulfing Candle
To make it easier for you. Let’s understand the daily trading techniques of Cory Mitchell. This is an application directly on the trading chart:
1. Example Entry Buy
On the GBP / USD chart with a 15-minute time frame below, the Uptrend is clearly visible. As shown by Trend Channel (black line). Pullback occurs when the price weakens for a moment from its strengthening. Then form Bullish Engulfing which indicates the price is still strong to return to the main trend.
If you are looking for a more filtered Bullish Engulfing signal, you should also test the Channel underline.
To set the entry position, immediately install when the second Bullish Engulfing candle has surpassed the first High candle in the range 1.2682. Stop Loss can be positioned on the second Low candle in the area of 1.2675, which on this chart is also outside the bottom line of the Channel. Take Profit, you can measure Risk / Reward Ratio 1: 2 and place it at 1.2696.
2. Example of Sell Entry
The technique of day trading with the Engulfing Candle also applies to Downtrend conditions. One proof can be seen on the GBP / USD chart with the following 15-minute time frame:
When the price pulls back from the Downtrend and hits the upper line of the Channel, a large bearish candle is formed and “eats” the previous candle, indicating a Bearish Engulfing which indicates if the seller’s power is still strong enough to pull down the price back to the main trend.
From there, sell opportunities can be taken by utilizing the first Low candle in the area of 1.2564. Then, Stop Loss can be positioned in the second High candle, which is recorded at 1.2569. Because the distance between the entry-level and Stop Loss is 5 pips, Take Profit can be determined at a distance of 10 pips from the entry to produce a Risk / Reward Ratio of 1: 2. This calculation results in Taking Profit in the range of 1.2554.
3 Important Tips From Cory Mitchell Day Trading Techniques
Although it seems easy and simple, there are a number of important factors which, according to Cory Mitchell, must be understood well:
1. Don’t Wait Until the Engulfing Pattern Is Complete Formed
Contrary to the general recommendation on how to trade with a candlestick pattern, Cory Mitchell actually advised that traders should not wait for the signal confirmation until Engulfing is formed. That’s because this day trading technique is done in a small time frame, and movements on such charts are so fast and relatively random, it will be too late if the trader has to wait until Bullish Engulfing records the closing price.
“There is no relevance to closing prices on charts 1, 5, or 15-minutes. Therefore, we only observe signals in real-time, and once there is an Engulfing pattern with an ideal setup, we can directly install the position from there .. , “ Cory Mitchell said.
That is why, the entry in the day trading technique was immediately triggered when the second candle just passed the first High or Low candle, not until it waited for the second candle to close to validate the Engulfing pattern. The assumption is, if the second candle has moved past the first High or Low candle, then the formation of the Engulfing pattern is almost ideal.
2. Carried out to apply the trend following strategy
As mentioned in the previous section, the Engulfing Candle is actually used to identify the Reversal Trend, so that it is most anticipated in the Uptrend peaks or Downtrend basics. However, the technique of day trading from Cory Mitchell is actually utilizing Engulfing Candle to confirm the trend forwarding.
So, does this not violate the basic rules of the Engulfing Candle itself? In fact, it isn’t. That is because we are only looking for an Engulfing Candle at the end of the pullback, which is basically a reversal point from the corrective movement to the main trend. Although the scale can be said to be minor, what is called a reversal is still a reversal, even if it does not change the direction of the trend in outline.
3. Engulfing Patterns Not Only Consisting of 2 Candle
According to Cory Mitchell, the dominance of a bullish candle by a bearish candle (or vice versa) is sometimes not only represented by two candlesticks. In the Bullish Engulfing pattern, for example, it may take one or two candles before a bullish candle that “eats” a bearish candle is formed.
An example can be seen in the graph below:
The picture above comes from the same chart as an example of the application of the entry buy in the previous section. The price test on the bottom line of the Channel in the circled section above indicates that the price formed a small candle first before there is a large bullish candle whose body “wraps” a bearish body candle.