Engulfing candlestick patterns are very powerful in indicating a market reversal.
An engulfing candlestick is a candle that is bigger than the previous candle and its size is engulfing it. The small candle that is engulfed by the engulfing candle is called the engulfed candle.
The bullish engulfing candlestick pattern signals the bullish momentum on the market, and the bearish engulfing candlestick pattern signals the bearish momentum on the market.
During an uptrend, when price pulls back or retests, look for an engulfing candlestick pattern to signal a buy entry opportunity.
When looking for a bullish engulfing candlestick pattern during an uptrend, look for areas of possible retests, breakouts, and bounce on support.
Place a buy order after the closing of the engulfing candlestick pattern. Set a 20-30 pip stop loss below the wick of the engulfing candlestick, and set the profit target to be bigger than the size of the stop loss.
Same principle applies during a downtrend. Look for a bearish engulfing on areas of possible retests, breakouts, and bounce on resistance.
Place a sell order after the closing of the engulfing candlestick, and set a 20-30 pip stop loss above the wick of the high of the engulfing candlestick. Set the profit target to be bigger than the stop loss.