How to Trade Forex With Bearish Engulfing Pattern
Candle is the easiest indicator to know trend change because it can give visual picture about market psychology and can give a signal when sentiments change. With this background, this article will discuss the use of Bearish Engulfing candle signals.
One of the technical trader tasks in the Forex market is being able to identify changes in the direction of price movements. candle is the easiest indicator to know trend change because it can give visual picture about market psychology and can give a signal when sentiments change. With this background, this article will discuss the use of Bearish Engulfing candle signals.
What Is a Bearish Engulfing Pattern?
Bearish engulfing pattern is a new candle pattern seen at the end of up-trend. In the picture above, the pattern created can interpret the data from the last two candles. The first candle will illustrate the end of the trend. You should note that the candle size may vary and is not related to the pattern itself. While Doji and other small candle just describe the market doubt in the ongoing trend.
The second candle in the pattern is a reversal signal. This candle is red and long which creates the momentum of price reduction. Ideally, the height of the candle should be longer than the previous candle. A strong downward movement reflects a greater sales force than a purchase and is often followed by a fall in the price of the next candle. The further a decrease in the second candle, the stronger the signal to continue the down-trend.
Bearish Engulfing in Trading
Once you are able to recognize bearish engulfing candle patterns, you are certainly expected to be able to apply them in trading. Above is an example of a price on the daily chart of EURUSD.
From January 13 to February 24, the EURUSD gained as much as 863 pips. This rally is closed with the formation of bearish engulfing pattern. In this case, we recommend a sell before the price actually drops by 1444 points on the same date.
Traders are advised to wait for bearish engulfing candle pattern although traders do not often execute when pattern is not complete yet. As mentioned in the previous article, you can use additional signals with an oscillator or breakout strategy to provide further open confirmation before a price reversal occurs.
Whichever method is chosen, when open positions, traders are expected to apply risk and capital management to anticipate losses. You are also expected to place a stop loss and target order to avoid the things that are not desirable. Happy trading.