Thursday, March 8, 2012

Engulfing bars - an introduction

I deleted the pending order on the GBPAUD last night as the nose of the pinbar was breached, so the pinbar is no longer valid. I'm currently in a live trade on the EURAUD and will post an after-action report once my TP or SL hits.

Engulfing bars

So far I've only been trading inside bars and pin bars around levels of support and resistance. Another good price action signal is the engulfing bar. An engulfing bar is precisely that - it literally engulfs the preceeding bar or candle.

Engulfing bars should only be traded as reversal signals around support and resistance. A standard entry would be the break of the engulfing bar against the trend, and a stop loss on the opposite end of the engulfing bar.

My main reservation about the engulfing bar are potentially huge stop losses. Because engulfing bars must envelope the preceeding bar, they MUST be large. However, in exchange for a large stop loss, your trade will be backed by more momentum. In other words, you'll be lowering your R:R in exchange for a higher win%.

In the coming weeks I'll start trading engulfing bars. I'm very hopeful as a quick glance on my charts show that this price signal is pretty reliable in heralding reversals.

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