I did some interesting research on large engulfing candles in the 4H timeframe. I found that Tuesdays seem to perform quite profitably. I backtested data from September 2012 to September 2015, with 11 currency pairs (AUDCAD, AUDCHF, AUDNZD, AUDUSD, CADCHF, EURGBP, EURJPY, EURUSD, GBPNZD, GBPUSD, NZDJPY, USDJPY).
I defined a "large" engulfing candle as one that is 1.5 times larger than ATR(6), with the high and low completely engulfing the previous candle, AND closing outside the range of the previous candle. Example is below:
(click to enlarge)
My entry was the break of the engulfing candle's high or low, in direction of the trend (RSI(6) determined the trend). My stop loss was located at the opposite high or low.
The problem with this backtest was that there were relatively few entries. I collected 256 sample trades over the last 3 years. The results are below:
Reward-to-risk of 1 and below showed some profitability. So, for example, if my stop loss was 100 pips, I might want to aim for a reward of less than 100 pips (33 to 75 pips would seem optimal).
Here's a basic equity curve for a reward-to-risk of 0.33 (the "optimal" reward-to-risk), using a starting a balance of $25.000, and 2% equity risk per trade.
Can this be a system?
Possibly. The backtest shows profitability between reward-to-risk of 1.25 and 0.25, so there's some flexibility in choosing your profit target. The only bad thing is that you can only trade once a week (only on Tuesdays).