Being able to read Japanese candlesticks is a skill that all binary option traders need to learn. In this lesson Sam teaches the Engulfing Candlestick – unlike pinbars and doji candlesticks, an engulfing candle is a double candle set-up. An Engulfing Candlestick can be used as a trading signal.
BO108 Lesson – Engulfing Candles Transcript
Welcome to another Binary Options 100 training video. My name is Sam. And this video is Binary Options 108: Engulfing Candlesticks. In previous videos we looked at pinbars, doji candlesticks, and spinning tops.
In this video we’re going to look at my favorite type of candle, and that is engulfing candles or engulfing candlesticks. This is an example of an engulfing candlestick. The engulfing candlestick engulfs or overshadows the candle previous.
And the main characteristic of an engulfing candle is the previous candle will fit into the engulfing candle with room to spare. This candle can easily fit into this candle, and we would have this room up here. So the size of a engulfing candle is bigger than the candle previous. And the engulfing candle is in opposite direction to the previous candle. So this would be a bullish engulfing candle. And let’s look at some examples of some other engulfing candlesticks.
So here are three examples of bearish engulfing candles. You’ll notice that these bearish engulfing candles engulf or overshadow the candle previous. And here are two more examples of bullish engulfing candles, because the candles engulf or overshadow the candles previous. Obviously a bearish engulfing candle is when the closing price is lower than the opening price. And the bullish engulfing candle is when the closing price is higher than the opening price.
So what do engulfing candles tell us, and what can they signal? They tell us there’s an increased momentum in the market or in price. So if we were to take this first example here, there is strong bearish momentum. The bears obviously had the upper hand during the duration of this candle in the sense it closed bearish. But the size of this engulfing candle outweighed the power of the bulls in the previous candle. So strong bearish power coming into the market.
If we take this example, the bulls or the buyers have the upper hand during the duration of the engulfing candle. But also that strength for buying power was far greater than the selling power previous. So what can engulfing candles show us? They can show us where future price direction is going to be. They can signal a reversal in price and signal a continuation of the current direction of price.
This is a chart of the British pound against the Japanese yen. We’ll be looking at this uptrend. And from this example, you should be able to see quiet clearly how effective engulfing candles are. So let’s start at the bottom of this trend. And as I’ve said in previous videos, pinbars, engulfing candles, dojis, spinning tops, they’re not going to be right 100% of the time. But later in this course, I can show you when to look for these signals and increase the probability of trading them profitably.
So let’s start at the beginning of this trend here. So we have an engulfing candle. Let’s zoom in a bit. We have a bullish engulfing candle. So from what I just taught in the previous slide, engulfing candles can show us where future price is going to be. So if we have a bullish candle, price could move on the upside. If we have a bearish engulfing candle, price could move on the downside.
So we have this bullish engulfing, and price moved steadily on the upside. We have another bullish engulfing here. It engulfs a doji, and price continues on the upside. We have another bullish engulfing. Price continues to move on the upside. And then we have this bearish engulfing. It engulfs a doji, and then price moves on the downside.
And this price behavior starts again. We have this strong bullish engulfing. It engulfs this candle previous. Price steadily moves on the upside. We then have this pinbar and engulfed in one, a bearish engulfing. The price moves slightly on the downside. We have this sideways movement for a while until we have a bullish engulfing that engulfs ever so slightly. And price moves on the upside.
Once again we have this bearish engulfing, and price moves sideways until we have another bullish engulfing, and price moves on the upside. A bearish engulfing, and it engulfs this candle previous. The price moves on the downside. And we continue to get bearish engulfings until we hit this bullish engulfing that engulfs a doji, and then price moves heavily on the upside. So engulfing candles can show where future price direction could be.
And as these videos go on, I’ll show you how to use engulfing candles as part of a trading strategy. And as also mentioned, engulfing candles are my favorite candlestick signal because of their simplicity and how effective they are. Thank you for viewing this video. There will be many more videos to come.