Daily And H4 Engulfing Price Action
You may have seen something similar to this before and I apologise if it covers some aspects of methods already described on this forum – I do not mean to detract from what is already explained by others. I would simply like to describe my recent “light bulb” experience and hope it is useful to us all.
This method uses Price Action and Momentum to identify a potential trade and place pending orders at appropriate levels. I also use Daily and H4 timeframes because it suits the time I have to spend at the computer screens.
- On the Daily timeframe identify an engulfing bar. For the purposes of this method an engulfing bar is one where the open and close engulf the open and close of the previous bar. Obviously you wait until the bar closes and the next bar starts before this is established.
- Having identified an engulfing bar, highlight it’s open and close. I do this by drawing a rectangle from the open level to close level, as shown in the attachment diagram Daily TF (grey rectangle).
- Draw a horizontal line at the high or low of the bar, depending if it is an engulfing up or down bar. Diagram shows an engulfing down bar and horizontal line at low (orange line).
- Having completed steps 1 to 3 move to the H4 timeframe (attachment diagram H4 TF).
- On the H4 timeframe wait for a bar to close below the horizontal line drawn in step 3 and place a Pending Sell Stop at this point. (Opposite for engulfing up bar).
- Set a Stop Loss about 5 pips above the previous swing high (or below the swing low if an engulfing up bar).
- Ideally set a Take Profit at 2 times the SL value in pips (or at least 1:1). Example shown SL=48 pips therefore TP=96 pips.
- If you are feeling confident set a second pending order with the same SL and move to Break even when the other orders TP is hit and let it run! (attachment diagram H4 Let it run)
There will, of course, be times when this does not work for various market reasons but backtesting the major pairs seems to have a good strike rate and some nice pips. Enjoy.
To set the Rectangle, to properly cover the day in question, you must edit the time settings and check that the High and Low are also correct
When you set the time properly, that is from 00:00 to 00:00, on the Day chart, the bars covered will show appropriately in the lower time frames
Best and easy to see on these charts, same day as the example in post # 1
This price action method does have merits; in fact when you add a trend filter, perhaps Weekly EMA, and then watch for and enter a trade on retracement, you have the equivalent of a method that sells for thousands on the internet.
So there, just saved you $2,000, just pay AndyG from your winnings and he will pass on to me
Seriously, though, the retracement thing does work, if you can watch price action, and your break out doesn’t seem to be taking off, watch what happens at the 50% point, which will be very close to that days’ Pivot by the way.
If the trend is strong, and it is not a reversal day, it usually turns around here.
Another thing not mentioned is TOD = Time Of Day. Often the price will drift, in this case, back up, during the Asian session, then when Europe rolls around again, the main trend continues.
And last thing, the EUR-USD seriously is not a good example of this strategy at the present time; sure there are some pips to be had but by no one definition is this pair trending.
Hope that helps, E.