Strategy One is one of our basic free strategies. It uses the engulfing candle pattern to identify market reversals, with an accuracy rate of 63%.
A candle engulfing pattern occurs between two consecutive candle bodies - one red and one green. In the pattern, the most recent candle 'engulfs' the previous candle of an opposite color. The pattern identifies a potential market reversal.
When the pattern is a Green candle followed by a Red candle, this is called a Bearish Engulfing Candle and can indicate that the market is about to turn downwards. When the pattern is a Red candle followed by a Green candle, this is called a Bullish Engulfing Candle and can indicate that the market is about to turn upwards.
We add a further refinement to this strategy by including a calculation of the 20 EMA (Exponential Moving Average). For the pattern to be detected by our algorithm, the Bearish Engulfing pattern must occur above the 20 EMA and the Bullish Engulfing pattern must occur below the 20 EMA.
Here's what it looks like visually:
How it Works
Strategy One works like this:
When a Bearish Engulfing Candle or Bullish Engulfing Candle is detected, a signal is sent to you advising of the detection. We provide a recommended Stop Loss, Take Profit and Enter Price (although you're more than welcome to change them).
Our Stop Loss is calculated as either the low of the previous Red candle for a Bullish Engulfing Candle OR the high of the previous Green candle for a Bearish Engulfing Candle.
Our Buy Price is always set at the high of the previous Red candle for a Bullish Engulfing Candle OR the low of the previous Green candle for a Bearish Engulfing candle.
Our Take Profit is always calculated at a 1:1 profit margin.
Where We Apply It
The engulfing pattern typically becomes a stronger signal on larger timeframes. We provide detection of the Engulfing Pattern (Bearish and Bullish) across all our timeframes, however, Strategy One updates are only provided on the M15, M20, M30, H1, H6, and H12 timeframes.
Where to Access
You can access Strategy One across all our symbols in the corresponding simple-strategies Discord channels. To see it in action on our free USDJPY detection, follow us on Twitter, join our Discord, or check out our website.