Is an engulfing bar more useful in a trending market vs. a ranging market?
Depends on where it forms really. They are both fairly strong signals. In a range-bound market, I’m leery of trading signals that do not appear near the widest points of S/R in the present range. So if one forms towards the middle, I typically disregard it wait for price to move closer to near one of the extremes.
In a trending market, it’s going to have much more weight if it’s in favor of the trend. More weight if it forms off a previous point of S/R from the previous bounce. If it forms against the trend, it’s a situation where I just wait because it may not have any fuel behind it.
On a related note; it’s important to trade the clearest signals. I know some traders look at any bar that’s bigger than the previous and forms as an engulfing as a clear sign but I want to see that the price clearly wants to move in the new direction. I typically want the bar to show at least a 20-25% extension past the previous instead of just a tiny sliver. Your mileage may vary.
Thanks for the information. So it sounds like you would not consider this to be a reversal type candle in a trending market or you would like to see more visibility on it before you act on it. I agree with your comment on trading the clearest signals and setups. I tend to want to trade for the sake of needing to trade instead of waiting for the better opportunities. On the 20-25% extension I assume the candle would have more weight if the 20-25% were on the side of the direction of the trend. So maybe not an equidistant engulfing bar but on slightly shifted towards the trend direction as long as it is still engulfing.
I avoid counter-trend trading. I’ve never had good success with it in Price Action trading. I know other people can do it well with their systems but I tend to just overlook signals that go against present trend.
As for a reversal; no I don’t consider a single signal to be indicative of a reversal. I read in a couple places that it’s very difficult to find the utmost extreme pivots with certain trading strategies; so I don’t do it anymore. Instead if I see a signal that looks like a potential reversal; I wait for confirmation of that reversal in the form of a new hop in the direction of what would be the new trend.
But it also depends on if the pair was in a trend in the first place. If it’s in a wide range and an engulfing bar forms off of a strong S/R point that indicates price wants to move in the direction of the other side of the range; then I’ll come in.
Tons of situational things as you can see.
Irrespective of the types of the market, I try to see what the candle is doing and keep patience even when the price refuses to go up or down to be sure whether there is a visible Bearish trend, or a visible Bullish trend! That is where we need patience.
The engulfing patterns are rather strong signal. But I always try to see more candles before the pattern has been formed. For example, whether “double/triple bottom/top” patterns are formed or not, because I can feel what the market is trying to do, in combination with support/resistance.
Those are usually the trend reversal patterns. So, I can [B]prepare[/B] to catch the trend as early as possible. It is required to have good patience to confirm the reversal, such as “relative high starts to go higher [B]and[/B] relative low starts to go higher” for up trend.
You don’t need to rush to a trade. Almost all the time, the good call comes after waiting.
Have fun!
Sorry to reply late. Thanks for your response…yes, patience is needed for a good call…