How to Use The Engulfing Candle Indicator

May 6, 2020 | 0 comments

Wondering how the engulfing candle indicator works on the MT4 trading platform? If you are a beginner in the forex trading space, it is actually natural for you to wonder how trading signals work, including the engulfing candle indicator. It is also natural for you to wonder whether or not the indicator will help you to make continuous profits as you kick-start your trading career. In this article, we will walk you through what engulfing candle indicators are and how to use engulfing candle indicator to make the most out of the forex market.

What Is Engulfing Pattern?

Engulfing is a type of candlestick pattern indicator used to determine possible reversal in the trend. It is used mainly to determine the bullish and bearish patterns of the market. It is formed the moment the candlestick closes bearish or bullish on the right. As a matter of fact, it engulfs the entire candlestick on the left, as you can see from the images below. We have introduced candlestick patterns in the course of explaining what engulfing means. Beginners may be wondering what candlestick patterns are and what they are used now. For the sake of simplicity, let’s quickly bring you up to speed on what candlestick patterns are before forging ahead.

What Are Candlestick Patterns?

Candlestick patterns are those patterns you see on the candlestick chart. They occur due to market sentiment following the activities of buyers and sellers. They typically depict the market trend and tell you who is in control of the market at a particular time of the day. Plus, they are repetitive in nature. When there is a change in price, a specific pattern will occur on the candlestick chart. The upward and downward changes in price are captured in the candlestick chart based on the upper and lower wicks on the chart.

Types of Engulfing Pattern

Engulfing patterns are of two types – the bullish and bearish engulfing. Bullish Engulfing This type of engulfing can appear anywhere in the trend, except the uptrend. It indicates that there is a high buying pressure on the market and that more buyers are willing to part with their money than sellers. Bullish engulfing drives the price of security further up. The image below shows the bullish engulfing pattern. Engulfing Candle Indicator Before you enter a trade position, ensure you combine this indicator with support and resistance levels or other dependable technical indicators for additional support to determine trend reversal. Bearish Engulfing This is the opposite of the bullish engulfing. It can appear anywhere on the trend except the downtrend. The bearish engulfing pattern generates more reliable signals when they appear at the top of the uptrend. They are two candles – the first candle is in green color, while the second candle is colored red. The interpretation of this pattern is that buyers are no longer willing to buy security; thus, forcing the price downwards. Engulfing Candle Indicator Just like the bullish engulfing, it is crucial to combine the bearish engulfing pattern with other technical indicators to get the most out of the market.

How to Trade The Reversals Correctly

Every trader on the market has a trading strategy that works for him/her. While some traders prefer to trade along with the trend, others may choose to trade against the trend. Regardless of your trading strategies, ensure you always combine the engulfing candle indicator with other technical indicators. Here is how to trade the reversals correctly; the first step is to confirm the trend of the security you have an interest in trading. Let’s take an example where we will trade the bullish engulfing pattern. The image below shows the bullish engulfing pattern or downtrend of the NZD/USD currency pair. As you can see from the chart, the downtrend is all over the price chart. However, all of these patterns cannot be traded, except those that appear in the support areas. The image below shows that more buyers are willing to buy NZD/USD currency pair.

How to Install The Engulfing Candle Indicator

The following is a step-by-step guide on how to install the engulfing candle indicator on the MT4 trading platform:

  • Down the MT4 trading platform.
  • On the MT4 platform, click on the “file” button and open the data folder.
  • Once the folder opens on your screen, check for the folder named MQL4.
  • Also, check for the folder titled “Indicators.”
  • Copy and paste the indicator you need inside the indicator folder
  • Close the indicator folder and the MT4 platform
  • Open the MT4 platform, the indicator you selected should be ready to use.
  • Ensure to always restart the MT4 platform after installing an indicator.

Using the Indicator MT4

Follow these steps to use the engulfing candle indicator:

  • Select your preferred pair
  • Check the custom bar and click on the indicator folder
  • Select the indicator and follow the instructions to configure the indicator
  • Check “Allow all import” and click ok to proceed
  • The engulfing candle indicator should be displayed on the chart.

Bottom Line

There you have it! Using the engulfing candle indicator is easy and straightforward. Statistically, traders make the most profits when this indicator is traded either at the top or bottom of the trend. So, always check to find the position of the trend before you enter a trade position; otherwise, you may suffer a loss. Another possible way of making profits with the engulfing candle indicator is to combine it with moving averages. However, the engulfing candle indicator remains a great tool to be used standalone. And if you aim for having multiple resources to make trading decisions, you should look at this link and figure out alternatives to apply for enhancement to making profits.

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