I was just reviewing my notes on candlestick patterns and wanted to share something that has worked quite well for me in my analysis. It’s about the engulfing candle, a pattern that most traders know, but many don’t know how to take full advantage of properly.

Basically, the engulfing candle is that pattern that tells you when a trend is about to change. What’s interesting is that it shows up right when you least expect it—usually at the end of a strong move. If you see a strong downtrend, suddenly a bullish engulfing candle appears that’s basically screaming to you that something is changing. And the other way around for bullish trends.

Now, the important thing is to be able to identify it correctly. You need to clearly see how one candle completely covers the previous one. And when I say completely, I mean it—seriously: the body must span the entire previous range, and the wicks both above and below must also be covered. If you don’t see that clearly, it’s probably not a valid engulfing candle.

As for how to trade this, there are two ways that work. You can enter immediately when you see the confirmed pattern, or if you prefer something more conservative, you wait for the price to test again around the middle of the engulfing candle’s body. That gives you more confirmation before you put money in.

For the stop loss, here comes the crucial part: you take the wick of the engulfing candle and add between one-third and one-half of the body to it. This is important to prevent the big players from sweeping your position with those sharp moves that generate liquidations.

What I like about this pattern is that it’s not only for entering trades, but it also helps you confirm whether we’re truly looking at a trend reversal. Each trader interprets it in their own way based on their analysis, so there isn’t a single correct way to use it. The important thing is that you understand it well and adapt it to your style. I hope this helps you improve your analysis and trade with more confidence.