Engulfing Forex Price Action Trading Strategy

The engulfing forex price action trading strategy is a strategy that employs 2 trading indicators and the fibonacci retracement in analyzing price. The core of the strategy lies in being able to pinpoint bullish and bearish engulfing on the activity chart.

Chart Setup

MetaTrader4 Indicators: DiDi_Index.ex4 (default setting), Exponential Moving Average.ex4 (14), Fibonacci Retracement

Preferred Time Frame(s): 1-Minute, 5-Minutes

Recommended Trading Sessions: Any

Currency Pairs: Any

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Buy Trade Example (Click the image for full size)

engulfing-forex-price-action-trading-strategy

Fig. 1.0

Strategy

Long Entry Rules

Initiate a buy entry when the following chart or indicator patterns are in display:

  1. If the bullish engulfing candle is followed by a candle with a high that extends well above the high of the previous candle as shown on Fig. 1.0.
  2. If the blue line of the DiDi Index indicator breaks above the 0.00 level, it is an indication that price is pushing to the upside i.e. a bullish signal.
  3. If price opens and closes above the magenta line of the Exponential Moving Average (14), it is a signal price is pressured upwards, which in turns supports a bullish sentiment in the market. We also have to take note of price breaking above the Fibonacci support level, a move that further supports the bullish stance in the market.

Stop Loss for Buy Entry: Place stop loss ~ 10 – 15 pips below entry price.

Exit Strategy/Take Profit for Buy Entry

Exit or take profit on position if the following conditions or rules are met:

  1. If a bearish engulfing candle forms at the highs of the bullish trend, it is a sign that price is going to reverse to the downside (refer to “Short Entry Rules” below).
  2. If the blue line of the DiDi Index indicator breaks below the 0.00 level, it denotes an imminent reversal in the current trend.
  3. If price opens and closes below the magenta line of the Exponential Moving Average (14), it is a sign that buying pressures are fading.

Sell Entry Rules

Place a sell entry if the following conditions or rules hold:

  1. If the bearish engulfing candle forms and is followed by a candle with a lower shadow that extends well beyond the low of the previous candle as shown on Fig. 1.1.
  2. If the blue line of the DiDi Index indicator breaks below the 0.00 level, it signals that price is pushing lower i.e. a sell signal.
  3. If price opens and closes below the magenta line of the Exponential Moving Average (14), it is a signal that suggests lower price pressures i.e. a bearish signal. Also note that price was unable to break above the 61.8 Fibonacci level, thus giving more weight to the bears in the market.

Stop Loss for Sell Entry: Place stop loss ~ 10 – 15 pips above entry price.

Exit Strategy/Take Profit for Sell Entry

Exit or take profit on positions if the following conditions or rules holds true:

  1. If by any means a bullish engulfing candle (refer to “Long Entry Rules” above) forms at the bottom of a bearish trend, an exit or take profit is advised.
  2. If the blue line of the DiDi Index indicator breaks above the 0.00 level, it signifies an exit or take profit trigger.
  3. If price opens and closes above the magenta line of the Exponential Moving Average (14), it denotes an exit or take profit trigger.

engulfing-forex-price-action-trading-system

Fig. 1.1

Free Download

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About The Trading Indicators

The DiDi_Index.ex4 custom indicator helps traders visualize uptrends and downtrend based on the concept of the simple moving average.

Lastly, the Exponential Moving Average is a moving average that plots the average price with more weight given to the latest price.

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