Trading Candles - Part 8

Today's candle formed an Engulfing candle. Engulfing candles are reversal candles. In order for an Engulfing candle to be a valid reversal candle, it must occur at a support or resistance level. In the case here the engulfing candle occurred at a resistance level. In addition, today's candle closed below a resistance level indicating a bearish condition. Further today's candle closed below the low of a Doji. A Doji is an indecision candle. To indicate a decision to move higher or lower requires a following candle to either close above the high of the Doji or below its low. A close above the high of the Doji would indicate the price is ready to start moving higher. A close below the low of the Doji would indicate that the price is ready to start moving lower. In our case here the following candle closed below the low of the Doji indicating price is ready to start moving lower. So we have a close below the low of the Doji, a close below the resistance level, and an Engulfing candle all indicating price is ready to move lower.

So how do we make trade decisions based upon this candle?

If I were to trade this setup I would be placing a Short market order at the close of today's candle and I would place a Stop loss above the high of today's candle.



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