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TechniTrader Beginner Education "Engulfing White Candlestick Patterns" by Martha Stokes CMT

Requirement List for Successful Entry for Engulfing White Candlesticks

 New and novice Traders learn a few candlestick patterns and rush out to trade believing this is all they need to be successful trading stocks. They are then often surprised to see the stock retrace and lose money.

Learning to find candlestick patterns that are ideal and will move in a strong run or trend that will provide excellent, consistent Return on Investment ROI for that trade requires more than just the candlestick pattern identification.

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List of requirements for successfully trading Engulfing White Candlestick Patterns:

1. Where the Engulfing White Candlestick Pattern Forms

Where the candlestick pattern forms is crucial to whether the stock will run up as expected. Not every entry signal has ideal set ups. Not every time that a particular candlestick pattern forms, is the stock going to run up.

2. Indicators

Indicators that reveal who is in control of price and that the energy behind the candle pattern, in this case an Engulfing White Candlestick Pattern is sufficient to move price up for good profits.

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3. Risk versus Reward

This must be calculated. Often when a stock does not run as expected, the reason is that the Risk versus Reward point gains was too low for a good entry.

4. Support and Resistance

Support and Resistance factor into Risk versus Reward. If Support is far below the Engulfing White Candlestick Pattern, then risk increases and the probability the stock will not gain sufficient points is higher. Resistance that is too close cuts down the number of points possible to gain in a run, and warns that the Engulfing White candle has consumed most of the run gain potential.

5. Market Conditions

Many times traders are accidentally trading against the Bias and Sentiment of the overall Stock Market. This happens often when they are following the major Indexes, rather than Market Condition Analysis which is all inclusive of every stock traded that day.

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Below is an example of how Engulfing White Candlestick Patterns may look like a great entry but fail. See the candlestick that just rises above Resistance, which is indicated by the red line. However even though the next day is a white candle this Engulfing White fails to run, and as can be seen in the following days would cause a small loss for most traders with this entry.

The problem with this entry signal was that the stock started to run up eight days prior to its formation, as indicated by the green arrow of where the run began. In addition, the Engulfing White has moved slightly above a strong Resistance level is another problem.

The combination of a run underway, easing just slightly above the high of Resistance, AND consuming point gain potential by the Engulfing White all together indicated this was not a good entry Engulfing White candle. The gap down was triggered Professional Trader profit taking.

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Summary

It takes more than a candlestick pattern like the Engulfing White Candlestick Pattern or an indicator crossover to be highly and consistently successful. If you have learned candlestick patterns or indicators that is a great start, but it is like trying to go out and find a six digit career job after finishing grade school. There is much more to learn, in order to trade like a professional and thus earn the high income of a professional.

Trade Wisely,

Martha Stokes CMT

TechniTrader.com

Chartered Market Technician
Instructor and Developer of TechniTrader Stock & Option Market Courses

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