Engulfing Candle Patterns are reversal patterns that signal a potential shift in market structure. There are two types: bearish and bullish engulfing candles, each influencing market direction differently.
In this guide, I’ll reveal what has been missing in these trading concepts, giving you an ‘aha’ moment. This is the only article that fully explores engulfing candles and uncovers what you might be missing when trading these patterns. you will see the link between these concepts with order blocks and fair value gaps
Bearish engulfing Candle Pattern
A bearish engulfing candle is the first candle that engulfs the last bullish candle, which forms the highest high in a swing point. In the smart money trading community, this bearish engulfing candle is also known as a bearish order block. Just as a bearish order block is validated by a fair value gap, the same applies to a bearish engulfing candle.
How To Trade Bearish Candle Pattern
After the last bullish candle has been engulfed, wait for a retracement into the engulfed bullish candle. In most cases, this retracement will align with a fair value gap, adding confluence to strengthen the bearish sentiment. Go short once the price closes the imbalance. This is also what you have seen me trade and teach as the first test of an order block.
Bullish engulfing Candle Pattern
A bullish engulfing candle is the first candle that engulfs the last bearish candle, which forms the lowest low before the up move—also known as a swing point. In smart money trading concepts, this bullish engulfing candle is referred to as a bullish order block. However, a fair value gap is introduced as an order block validator, meaning an order block without a fair value gap is not valid. The same principle applies to engulfing candle patterns just that many are not aware.
How To Trade Bearish Candle Pattern
After the last bearish candle has been engulfed, wait for a retracement into the previously engulfed bearish candle before making a buy entry. This is also known as the first test of a bullish order block. In most cases, this retracement aligns with a fair value gap, adding confluence to the bullish sentiment for taking a long position.
Final Thoughts
If you are already familiar with order blocks and how to trade them properly, there is no need to learn these patterns. For new traders, I strongly recommend focusing on order blocks instead, as they are a superior alternative to candle patterns. Order blocks provide a more precise understanding and a clear explanation of why the engulfing candle pattern often fails—specifically, due to the fair value gap, which is the missing piece in engulfing candle trading concepts.
This might be the only article that gives you an ‘aha’ moment because I’ve just connected the dots. If you’ve been trading engulfing candle patterns, you now understand what was missing all along.
