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«Japanese candlestick engulfing » strategy

The trend is determined by two candlestick patterns:

  • «Bullish engulfing».An uptrend in which a bullish candlestick overlaps the bodies of two or more previous bearish candlesticks. This is a signal to open a bullish deal;
  • «Bearish engulfing».A declining candlestick overlaps the bodies of two or more previous bullish candlesticks.

When one of the indicated combinations appears, open a deal in the appropriate direction. The expiration period must be at least two candles. For example, if you are trading on a 5-minute timeframe, the contract expires at least 10 minutes.

When using the strategy, remember the following rules:

  • The next candle after a bullish or bearish candle opens with a slight gap;
  • Open a deal for an increase or decrease only after the complete close of the signal candle;
  • The transaction amount must not exceed 10% of the trade balance;
  • Do not open an order for or 15 minutes after the release of important news or world events;
  • To confirm the signal, use the indicators: the MACD, Stochastic, the CCI and others ;
  • Use the system of damages collateral.

Example of a deal

Let’s evaluate the effectiveness of the strategy using the example of the GBP / USD currency pair with a 5-minute timeframe. The figure shows that the green candlestick overlaps the bodies of the two previous declining candlesticks. This is a signal to open a bullish trade. After two candles, we see that the deal was closed with a plus, and the Bullish Engulfing module is working.

To make sure the strategy is effective, let us test it on the “Bearish Engulfing” module. In the chart below, we see that the orange candlestick is higher than the previous two green ones, i.e. bearish. This allows us to say with confidence that the strategy works both ways.

In our practice, “bearish engulfing” occurs significantly more often than “bullish engulfing”. You can use support and resistance levels to confirm the signal. To be 99% confident in the profitability of a trade, check the trend on other currency pairs.

The described strategy is suitable for both beginners and experienced traders.

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