A simple trading strategy, with no indicators, based on the “engulfing” candlestick pattern. It works in Forex and crypto on higher timeframes, from D1. It is designed for trading with moderate leverage, from 1:10, and with risk management of 1% per trade. Use it only with reliable brokers and exchanges.
How to Define the Trend
- Daily timeframe: define the trend by analyzing the last 20 candles.
- Uptrend: most candles are bullish and price keeps making higher highs.
- Downtrend: most candles are bearish and price keeps making lower lows.
Entry Level
Bullish engulfing:
- appears in a downtrend;
- the bullish candle completely covers the body of the previous bearish candle;
- buy entry: at the open of the candle following the engulfing candle.
Bearish engulfing:
- appears in an uptrend;
- the bearish candle completely covers the body of the previous bullish candle;
- sell entry: at the open of the candle following the engulfing candle.
Trade Management
Stop loss:
- on buys: slightly below the low of the engulfing candle;
- on sells: slightly above the high of the engulfing candle.
Take profit:
- use a risk/reward ratio of at least 1:2;
- fixed take profit at the 261.8 Fibonacci level;
- floating take profit: at the close of a candle against the trend beyond the extreme of the previous one;
- you can close part of the position at the nearest support or resistance.
Trade follow-up:
- move the stop loss to breakeven when price reaches half of the potential take profit;
- for a more aggressive approach, use a trailing stop below the low (or above the high) of the last two candles.
The strategy is simple, but it requires attention to the formation of candlestick patterns and to the overall market situation.
