This article is all about one of the most powerful and reliable Forex price action set ups available. It is the Bullish and Bearish Engulfing Bar. Some traders call it the Bullish or Bearish Outside bar. When played from the right areas and with the knowledge of how to be used correctly the engulfing bar is extremely useful price action tool to have in the trader’s armoury.
The acronyms for bearish and bullish engulfing bar are BEEB and BUEB.
Engulfing Bar structure:
The engulfing bar as it states in its title is formed when it fully “Engulfs” the previous candle. The engulfing bar can engulf more than one previous candle, but to be considered an engulfing bar at least 1 candle must be fully consumed.
Where traders often get confused it with the candles bodies and wicks, but what traders just need to remember is that; the engulfing bar must have a higher high than the previous candle and a lower low. This is taking into account both wicks and bodies of the candle and just as long as the high is higher and the low is lower, then it fully engulfs the previous candle and is valid.
An example of a valid Bearish Engulfing Bar
An example of an Bullish Engulfing Bar
When looking for Engulfing bars we are looking for the large and very obvious bars that stick out. The bigger the Engulfing bar the better to trade as Engulfing bars are momentum bars, and we want to trade with momentum on our side! The bigger the bar, the bigger the momentum!
Not all Engulfing bars are tradeable signals and this is where the knowledge of where to look for them to form is absolutely key! The 2 basic criteria that need to be followed for an Engulfing bar to be a tradeable Engulfing bar are:
1: Must be large and obvious,
2: Must form at a swing point.
Those are just the 2 very basic things you need to look for when assessing an engulfing bar. When I say the Engulfing bar must form at a swing point, I mean if in an uptrend it must form at a swing low or if in a down trend it must form at a swing high. This is absolutely critical to having success with the engulfing bar!
The other main point for traders to keep an eye out with their engulfing bars is where the engulfing bar closes at the end of the session. The best engulfing bars close in the last 1/3 of candle in the direction that trading is going to be made. For example; if it is a bullish engulfing bar, then the best bullish engulfing bars would close in the upper 1/3 indicating that price has closed strongly. This indicates that price has closed strongly in the direction that the trader wants to trade in.
Example of High Quality Engulfing Bars
When combined on high time frames such as weekly and daily charts, and used with correct money management the Engulfing bar can be a very reliable and profitable Forex tool that every trader should have in their arsenal.
The next step for the trader is to learn where the best spots on the chart the engulfing should be played from and then the art of managing the trade correctly once they have been entered. Not all engulfing bars are created equal and just because an engulfing bar has been formed, does not mean the trader should automatically enter the trade. This is the next step in what the trader needs to learn.
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