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How to Successfully Trade Engulfing White Candlestick Patterns?

How to Successfully Trade Engulfing White Candlestick Patterns?
October 11, 2019 Martha Stokes CMT

How to Successfully Trade Engulfing White Candlestick Patterns?

List of Chart and Market Requirements Necessary for Success

New and novice traders learn a few Candlestick Patterns and rush out to trade believing this is all they need to be successful trading stocks. They are then often surprised to see the stock retrace and lose money.

Below is an example of how Engulfing White Candlestick Patterns may look like a great entry but fail. See the candlestick that just rises above Resistance, which is indicated by the red line. However, even though the next day is a white candlestick, this Engulfing White fails to run, and as can be seen in the following days would cause a small loss for most traders with this entry.

The problem with this entry signal was that the stock started to run up eight days prior to its formation, indicated by the green arrow as to where the run began. In addition, another problem is that the Engulfing White has moved slightly above a strong Resistance level.

The combination of a run already underway as well as it easing just slightly above the high of Resistance which consumed the point gain potential of the Engulfing White, indicated this was not a good entry Engulfing White Candlestick. The gap down was triggered Professional Trader profit-taking.

Learning to find Candlestick Patterns that are ideal and will move in a strong run or trend that will provide excellent, consistent Return on Investment for that trade requires more than just the Candlestick Pattern identification.

List of requirements for successfully trading Engulfing White Candlestick Patterns:

1. Where the Engulfing White Candlestick Pattern Forms

Where the Candlestick Pattern forms is crucial to whether the stock will run up as expected. Not every entry signal has ideal setups. Not every time that a particular Candlestick Pattern forms, is the stock going to run up.

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2. Indicators

Indicators that reveal who is in control of price and that the energy behind the Candlestick Pattern, in this case an Engulfing White Candlestick Pattern, is sufficient to move price up for good profits.

3. Risk versus Reward

This must be calculated. Often when a stock does not run as expected, the reason is that the Risk versus Reward point gains were too low for a good entry.

4. Support and Resistance

Support and Resistance factor into Risk versus Reward. If Support is far below the Engulfing White Candlestick Pattern, then risk increases and the probability the stock will not gain sufficient points is higher. Resistance that is too close cuts down the number of points possible to gain in a run, and warns that the Engulfing White Candlestick has consumed most of the run gain potential.

5. Market Conditions

Many times traders are accidentally trading against the Bias and Sentiment of the overall Stock Market. This happens often when they are following the major Indexes, rather than Market Condition Analysis which is all inclusive of every stock traded that day.

Summary

It takes more than a Candlestick Pattern like the Engulfing White Candlestick Pattern or an indicator crossover to be highly and consistently successful. If you have learned Candlestick Patterns or indicators that is a great start, but it is like trying to go out and find a six digit career job after finishing grade school. There is much more to learn, in order to trade like a professional and thus earn the high income of a professional.

Go to the TechniTrader Learning Center and watch a training webinar.

Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using a FreeStockCharts chart, courtesy of Worden Bros. and FreeStockCharts.com

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses

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Martha Stokes, CMT is co-founder and CEO of TechniTrader. She is a retired professional Buy-Side Analyst and was awarded the Chartered Market Technician designation for her thesis, "Cycle Evolution Theory." Martha is a passionate teacher of the financial markets and a prolific writer, having created over 40 stock, option, and financial market courses.