Engulfing candle
A two-bar shift in which the second real body covers the first.
What to look for
- Opposing candle direction
- Second body covers the first body
- Optional whole-range rule is stated explicitly
The second bullish candle opens below the first bearish close and finishes above its open, so its body covers the first body. Location and follow-through are separate checks.
For the bearish version, start with a bullish candle. The next bearish body opens above the first close and finishes below the first open.When the pattern is confirmed
The engulfing close plus independent location or structure criteria.
Where the idea is wrong
Beyond the two-bar extreme or the structural level being defended.
The easy mistake
Loose definitions and hindsight make ordinary large candles look special.
A complete engulfing candle example
Use a two-candle example at a level marked in advance or after a clear pullback. Show body engulfing and full-range engulfing side by side so learners do not switch definitions after seeing the result.
First rule to test
Engulfing close — enter no earlier than the close of the second candle when the chosen body or range rule is complete.
Alternative rule
Two-bar break — wait for price to trade beyond the complete two-candle high or low in the engulfing direction.
Place it where the pattern is wrong
Place the example stop one fixed ATR fraction beyond the furthest extreme of the two-candle pattern.
Context, trigger and risk
The pattern handles timing. The other tools decide whether the location makes sense and how far normal price movement can reach.
Gives the two-candle shift a pre-existing location to react from.
Normalises candle size and the stop buffer across pairs.
Adds a separately tested momentum condition without defining the pattern.
First exit to test
Fixed-R comparison — use the same preselected reward-to-risk multiple for every qualifying example.
Alternative exit
Prior swing — exit at the next opposing swing that was already visible when the engulfing candle closed.
Patterns need a method around them
Open a related strategy to see the wider market filter, entry, stop, exit and no-trade rule.
Support and resistance rejection
A framework for testing reactions at levels that genuinely predate the trade.
- ENTRY
- Enter at the next H1 open after the first qualifying rejection close back above the prior-day low or below the prior-day high.
- STOP
- Place stop 0.20 × ATR beyond the rejection candle extreme. Risk 0.50% of equity and round down to 0.01 lot.
- EXIT
- Take profit at 2R. Exit after 12 completed H1 bars if neither stop nor target trades.
Trend pullback
Research whether shallow retracements inside an objective trend resume in its direction.
- ENTRY
- After eligibility is true, place a market order at the next H1 open when the signal candle closes beyond the highest high of the previous two pullback bars for a long, or below their lowest low for a short.
- STOP
- Place the stop 0.25 × ATR(14) beyond the pullback extreme. Size so entry-to-stop risk equals 0.50% of demo equity, rounded down to 0.01 lot; never widen the stop.
- EXIT
- Place a fixed target at 2R immediately after entry. If neither stop nor target trades first, exit at market after 24 completed H1 bars.
RSI divergence reversal
Tests whether a mismatch between price and RSI swings adds value after exhaustion.
- ENTRY
- Enter next bar open after price closes beyond the highest high of the five bars ending at the confirmed second low for bullish divergence; mirror below the five-bar low for bearish divergence.
- STOP
- Stop is 0.20 × ATR(14) beyond the second price pivot. Risk 0.50% of equity and round down to 0.01 lot.
- EXIT
- Take profit at 2R. Exit at market after 20 completed H4 bars if neither stop nor target has traded.
Try it on older charts
Compare body-only and full-range definitions using the same exits.