16# Engulfing Pattern Trading System
Engulfing Pattern with Stochastic Oscillator
Submit by Max Trader 02/12/2013
The Engulfing pattern is a major reversal pattern. It is made up of two candles that
are 2 different colors; red being a downtrend candle, and green being an uptrend
candle. This particular pattern is formed after a clear downtrend in the market. This
candle ideally opens lower that the 1st day’s close, then ideally closes higher than
the 1st day’s open, which will show the green candle completely engulfing the
previous red candle of the day before. The candle for the previous day shows that
the trend was losing momentum, the large body shows that the new direction has
started of with strength.
Typically, a Bullish Engulfing pattern reveals when the
buyers have stepped in giving a clear indication of a change in direction. NOTE: the
Bullish candle DOES NOT have to engulf the shadows/wicks of the previous
downtrend candle, only the body has to be completely engulfed. The bigger the engulfing, the stronger the signal.
Engulfing Pattern in this trading system is filtered by stochastic oscillator.
Time Frame is 240 min or higher.
Pattern Recognition Master
Stochastic Oscillator (8,5,3).
Rules for Engulfing Pattern Trading System
Long entry conditions
Engulfing pattern buy;
2) Stochastic Oscillator Crosses upward.
Short Entry Conditions
Engulfing pattern sell;
2) Stochastic Oscillator Crosses downward.
Profit target 30-50 pips depends by currency pairs.
Stop loss 15 pips above or below at the entry bar.