> Trading System Scribblings - Engulfing Price Action on Retrace or Reversal

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The Premis (MUST READ LINKS)

The engulfing candle and support and resistance levels play on the psyche of traders' - see The Psychology of Support and Resistance and Reading Candlestick Patterns (Reading Trader Sentiment) for more on this. We will use market sentiment and The Price, Volume, Demand & Supply Relationship alkng with sentiment to execute and exit our trades.

Time Frame and Markets

Works on all time frames and all liquid markets like Eur/Usd etc...

Set Up

Draw all significant support, resistance, trend lines and chart patterns on your long term charts and working execution chart. So if you are trading on a 30m chart you can use a 1H and 1D chart as your longer term charts. The 30m chart is your execution chart. Place 100 and 200 SMA's on execution chart.

"Indicators"
  • Confirmation candlestick - An engulfing candlestick. Loosely as long as it's bigger than the last then this will be our confirmation.
  • Significant Support and Resistance levels as above set up, inc last days high/low
  • Trend Lines - i.e channels etc... as support/resistance areas
  • 100 and 200 SMA's as support/resistance ares
  • Fibonacci retracement
Entry
  • Enter on the confirmation candlestick on your execution chart after a retracement or reversal of trend as determined by support/resistance levels and Fibonacci
  • Confirmation candlestick should break next support/resistance level or bounce from last level (if there is one).
  • Entry to exit should have room to achieve next support/resistance
  • If betting against the trend, i.e a retrace of full blown reversal entry to exit should have room to achieve Fibonacci 61.8% levels or next support/resistance.
Take Profit

At least 1:1 including spread with a Break Even after candle height has been reached.

Stop/Loss

Last high/low before retracement/reversal, but ideally above or below last support/resistance level plus a few pips.

Notes
  • A double confirmation of support/resistance is a more robust execution areas
  • If in doubt, take the trade.
  • See Module 1, 2 and 5 for further reading



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The Premis (MUST READ LINKS)

The engulfing candle and support and resistance levels play on the psyche of traders' - see The Psychology of Support and Resistance and Reading Candlestick Patterns (Reading Trader Sentiment) for more on this. We will use market sentiment and The Price, Volume, Demand & Supply Relationship alkng with sentiment to execute and exit our trades.

Time Frame and Markets

Works on all time frames and all liquid markets like Eur/Usd etc...

Set Up

Draw all significant support, resistance, trend lines and chart patterns on your long term charts and working execution chart. So if you are trading on a 30m chart you can use a 1H and 1D chart as your longer term charts. The 30m chart is your execution chart. Place 100 and 200 SMA's on execution chart.

"Indicators"
  • Confirmation candlestick - An engulfing candlestick. Loosely as long as it's bigger than the last then this will be our confirmation.
  • Significant Support and Resistance levels as above set up, inc last days high/low
  • Trend Lines - i.e channels etc... as support/resistance areas
  • 100 and 200 SMA's as support/resistance ares
  • Fibonacci retracement
Entry
  • Enter on the confirmation candlestick on your execution chart after a retracement or reversal of trend as determined by support/resistance levels and Fibonacci
  • Confirmation candlestick should break next support/resistance level or bounce from last level (if there is one).
  • Entry to exit should have room to achieve next support/resistance
  • If betting against the trend, i.e a retrace of full blown reversal entry to exit should have room to achieve Fibonacci 61.8% levels or next support/resistance.
Take Profit

At least 1:1 including spread with a Break Even after candle height has been reached.

Stop/Loss

Last high/low before retracement/reversal, but ideally above or below last support/resistance level plus a few pips.

Notes
  • A double confirmation of support/resistance is a more robust execution areas
  • If in doubt, take the trade.
  • See Module 1, 2 and 5 for further reading



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