Trade Plan: Daily Engulfing Bar Looking for a Trade Plan that has low effort to spot a Trigger and execute? Many traders want to trade but simply do not have the much time, due to other work commitments, to watch the markets on a minute by minute basis. Hence, traders like this need to develop a Tool Box of Trade Plans that allow you to still trade, though perhaps one can only look at the market at the end of the day. With this Trade Plan one can do this. By identifying the previous days candlestick pattern and setting a limit order entry for the next day, one can still day trade the markets with minimal chart watching time.
Description: The idea of the Trade Plan is to catch a reversal using the daily engulfing candlestick pattern. We shall use the daily charts with a 20 MA (moving average) applied. The example is a short case, but the exact opposite would be true for a long case. Please follow along with the thumbnail graphic and watch the video below or by clicking here.
Trigger: First identify the trade trend on the daily chart with the 20 MA. Look for an engulfing bar. On the next day look for a break high/low of this engulfing bar in the opposite direction of this 20 MA.
Filter: Ensure the engulfing bar is at least 80% (in length) of the past 10 days ATR (average daily pip range).
Order Management: The suggestion is to use Buy/Sell stop order to enter. The Stop is at the 50% mark of the high/low of the engulfing bar. The Target is 1 times the Stop amount at least (1 to 1 PSR – Profit Stop Ratio). Perhaps even higher depending on the recent length of the recent trending move. Perhaps one could conceive of further specific parameters to be followed here.
One could consider this on the 4-hour or even the 1-hour chart, though win rates will be lower and hence an expanded PSR should be considered. Also, other daily candlestick patterns could be considered. Give this Trade Plan a look and see if you can make it work and/or improve upon it.
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