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Bullish Engulfing Pattern Tested 100 TIMES so you can master your Candlestick Trading Strategy - YouTube
Channel: TRADING RUSH
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Is the Bullish Engulfing Pattern actually
good? Should you put your money on the Bullish
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Engulfing Candlestick Pattern? Well, to find
out, why don't we test the Bullish Engulfing
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Pattern one hundred times, just like we tested
other trading strategies multiple times on
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this channel. Check them out, and subscribe
to the Trading Rush Channel, because the last
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thing we want to do as a trader, is trade
on a strategy the doesn't work in the long
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run.
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The bullish engulfing pattern is a two candlestick
pattern, where a small red candle is followed
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by a big green candle that completely engulfs
the body of the previous red candle. Bullish
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engulfing is a reversal pattern, and it is
used to find the reversal in a down trend.
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In simple words, the bullish engulfing pattern
is mostly聽used to find the entry and exit
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in a trading strategy. Now, some traders who
trade on daily and higher timeframes, like
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to trade using the candlestick patterns alone.
But why is this candlestick聽pattern so popular
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and trusted by many traders? Well, to understand
that, we will first have to understand how
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the engulfing patterns work.
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Since聽candlestick patterns are watched closely
on the daily timeframe, let's say on the daily
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timeframe, a stock or a forex pair made new
lower lows four days in a row. Most people
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who trade on the daily timeframe will see
this as a strong selling聽pressure. The people
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who were聽selling are happy, and many buyers聽are
not ready to buy after sellers took over the
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market 4 days in a row.
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Now if a green candle opens at or below the
closing price of the previous red candle,
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and manages to close above the opening price
of previous red candle, it will indicate a
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lack of selling pressure on that day. It means
that the sellers who were selling for 4 days
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in a row, are no longer interested in selling,
and the buyers are more interested in buying.
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When this happens, the next few聽candles that
follow will have a higher probability of moving
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higher. Now remember, the bullish engulfing
pattern is a short term pattern. What this
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means is,聽when聽the bullish engulfing pattern
occurs, price has a higher chance of moving
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upwards for a short time period. That's why
it is usually used as an entry signal pattern
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in a trading strategy that can predict long
term trend聽direction.
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For example, let's say in an uptrend, you
are waiting for the price to touch your support
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area. Now if the price touches your support
area, you cannot聽immediately buy as there
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has to be a聽reversal confirmation. So instead
of risking your money immediately, you wait
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and take a long trade when the bullish engulfing
pattern appears.
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Now everyone is going to use the bullish engulfing
pattern differently with their different trading
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strategies, but what I wanted to find out,
was how good of a pattern the bullish engulfing
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pattern really is on its own.
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Since candlestick patterns are short term
trading patterns, there are traders on daily
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and higher聽timeframes, who hold the stock
or a forex pair only for the next 1 or 2 candles.
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So to find out how many times the price actually
went up the next day after the engulfing pattern,
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I tested the Bullish engulfing pattern 100
times, and here's what happened.
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Number 1. I added the 200 period moving average
to filter false signals, and even though the
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bullish engulfing pattern is a reversal candlestick
pattern, many people will use it in the strong
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trend to find the reversal of a pullback.
When the price movement聽was not聽choppy,
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the price did go in the upward direction on
the next day.聽
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Number 2. The probability of price reversing
is higher, when the engulfing pattern occurs
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after more than 4 red聽candles in a row. Furthermore,
the price has a higher probability of making
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a big move in the upward direction, if the
volume of the green candle is higher than
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average. You can check the Volume Trading
video on the Trading Rush channel to learn
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more about volume and how it can make you
more money. But sometimes price can make big
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move when the volume rises. This can sometime聽lead
to very big stoploss. If you find yourself
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in a position where the bullish聽engulfing
candle is too big, it is a good idea to skip
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that trade as the candle has already made
a big move in the upward direction. Also,
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candle stick patterns don't tell you where
to put your profit target, and since the candle
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stick patterns are short term patterns, getting
a higher reward to risk ratio trade聽can be
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difficult. But if you can identify a strong
support level in an uptrend,聽and take trade聽when
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the engulfing pattern occurs, you can achieve
higher reward to risk ratios.聽
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Number 3. In an engulfing pattern, price only
has to cover the body of the previous red
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candle, but if the engulfing candle covers
the entire candle including the wick, the
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probability of the price making an upward
move after the bullish engulfing pattern is
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a lot higher. So if you only take trades on
bullish engulfing patterns, where the pattern
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is formed after 4 or more red candles, and
the volume on the engulfing candle is higher
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than average, and if the engulfing candle
is also covering the wick of the previous
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candle, you will have a higher chance of making
a profit.聽
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Number 4. Now remember, I tested this pattern
on the聽daily timeframe and with the 200 period
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moving average. When we will use the bullish
engulfing pattern with other trading strategies,
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for example with the alligator indicator or
with the support and resistance areas, the
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win rate of this will be much higher than
what we will get here. If we get a profitable
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win rate in this backtest, there is a higher
chance that the bullish engulfing pattern
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will work even better, when combined with
another profitable strategy. For backtesting,
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I'm using the Official聽Trading Rush App.
It calculates win rate, profit graph, number
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of winners and losers in just one click. You
can download it from the link in the description
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or from the Play Store, and use it to test
and see how good the bullish engulfing pattern
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works when combined with your own trading
strategy. If you don't have a working trading
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strategy, check out other videos on the Trading
Rush channel, you will probably find a strategy
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that suits your needs.
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So after backtesting the bullish engulfing
candlestick pattern 100 times, here's what
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I found out. It is said that the price on
the聽next day on the daily timeframe, will
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make an upward move after an engulfing pattern
occurs. And during this backtest, 54 out of
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100 times, the price did make a move in the
upward direction. It made an upward move 8
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times in a row, and failed to do the same
5 times in a row. What this means is that
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if you combine the bullish engulfing聽candlestick
pattern with a decent trading strategy that
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shows the聽long term trend direction, you
will have a powerful entry or exit signal
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generator. The win rate I got here is the
approximate win rate, and as we have seen
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after taking 10000 virtual trades in the "why
I test strategies 100 times video", we don't
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need the accurate win rate to find if a strategy
works or not. We only need the approximate
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win rate and聽money management will do the
rest. After testing 100 times, we found that
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the聽bullish engulfing candlestick pattern
is a profitable candlestick pattern.
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That's all. Like the video if you liked it.
Subscribe and ring that notification bell
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to see more candlestick patterns tested 100
times, because you don't want to use a candle
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pattern or a strategy that does not work in
the long run. And聽thank聽you so much for
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supporting the Trading Rush channel on Patreon.
Have a Great Day.
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