Trading Strategy with Price Action and the Engulfing Candle Pattern - Crypto Academy/S5W7 - Homework post for @lenonmc21

in SteemitCryptoAcademy5 months ago



Hello friends. A very warm welcome in the second last week of 5th season. We almost have reached to the end. Our journey was excellent and we learned much more about the crypto world. All thanks to all the professors. We had the lectures on weekly base and those lectures were the treasure of the knowledge. This week, the professor @lenonmc21 has taught us "Trading Strategy with "Price Action and the Engulfing Candle Pattern ". Let start the homework task.

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Question 1. Say in your own words that you understand about the Trading Strategy with “Price Action and the Engulfing Candle Pattern, also describe each step to be able to execute it (Place at least 2 examples in clear cryptographic assets and with your own charts mandatory) ?


The crypto market is highly versatile where the price of the coins are not stables and keep changing time to time. The traders keep doing the trading and their buying and selling pressure effect the movement of the market. The market behave according to the moves of the traders in the market. So the traders first analyze the market before taking the trading decision. There are multiple tools and strategies to analyze the market which the traders use to predict the future of the market. We need to have proper understanding in order to use a strategy to earn the profit. The Price Action and the Engulfing Candle Pattern is also a trading strategy which is use in the crypto market for analyzes.

In this strategy, the engulfing candles are being used to enter or exit from the market using this strategy. This is the price action based strategy which we use when the market is in trending phase. The price action is use in this strategy to take the trading decision. This strategy is based on the price action so there is high need for the price to move in a clear direction in order to use this strategy. When there is a clear trend, this strategy work well and the traders get the high profit.

When the price is moving in a certain direction, either upward or downward, then in this strategy, we wait for the price to make a counter move. We wait for the price to move in opposite direction to the current market trend. When the price make an opposite move, it is predicted that the market trend is going to reverse. We place the entry and exit orders at this time to take the advantage of the opportunity. This point create the perfect opportunity for the traders to enter or exit from the market in profit.

When the trend reverse, we need to wait for the candles to move in the new direction with great volume. We will wait for the price to break the market structure and then pull back. Here we will use the Engulfing candle pattern. Once the market structure get break and the price pull back, here we use the engulfing candle pattern. This strategy work well for short time frame like 15 minutes, 30 minutes, etc.


Step by Step for the execution of trading strategy with price action and the Engulfing candle pattern


  • There should be a clear market trend on the chart

To apply this strategy, we need to have a chart with the clear market trend. The price should move in a particular direction. Identification of the market trend is the first step to execute the Price action and the Engulfing candle pattern. The price action should be clean and there should be harmony in the impulsive moves and retracement in order to set up this strategy. The pull backs and the impulsive moves should be equal on the price chart in form of a healthy and harmonic price action. We will apply the time frame of 15 minutes or 30 minutes on the chart. After identification of the trend on the market chart, we have completed our first step to execute the trading strategy with price action and the Engulfing candle pattern.


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In above chart, there is clear uptrend. The higher highs are formed where each high is higher than previous high.


  • A strong Movement Opposite to the Current Direction 

In first step, we have identified for the harmonic trend with same and equal impulsive and retracement moves. Now next step is waiting for the trend reversal point. In this step, we will identify a very strong movement with high momentum in the opposite direction of the market trend. When the big movement will be taken on the chart, the candles with high volume will be shown. This will signifies that the great number of traders have been entered into the market and now they are pulling the price of the coin in opposite direction.

This is the best point to make an entry into the market or to exit from the market. This spot create the best opportunities to place an order and to earn profit. When the trend reverse with great momentum and large movement, the price start moving in the opposite direction of the current trend. The large volume candle are shown on the chart, we should wait for the 3-4 candles in this direction and then should make an entry.


Screenshot (6972).png


  • Identification of a break in the price and the Engulfing Candle Pattern

Once the strong movement have been identified on the chart as we mentioned in the step 2, now we need to identify the break in the price structure. The Break in the price mean the retracement of price when the price take a break and move in the previous trend . Suppose there was an uptrend in the market which we identified. Then the price take an opposite move and the trend got reversed. Now price break the previous higher high and started moving in the bearish trend with great volume and high momentum by breaking the previous high. Then we need for the price to take a break. Price move again in the direction of the previous trend. Here we apply the bullish engulfing chart pattern.

And if we Suppose there was an downtrend in the market which we identified. Then the price take an opposite move and the trend got reversed. Now price break the previous lower low and started moving in the bullish trend with great volume and high momentum by breaking the previous low. Then we need for the price to take a break. Price move again in the direction of the previous trend. Here we apply the bearish engulfing chart pattern.



Screenshot (6964).png


Then we will mark the upper and the lower of the candle in horizontal line. We will change the time frame to 5 minutes in next step so we need to mark the candle in the vertical line in order not to lose that candle.


  • Switch Chart to 5 Minutes Time Frame

Now we will switch the chart from the 15 minute time frame to 5 minute time frame. Then we will wait for the price to break the horizontal lines of engulfing candle which we draw in the 15 minute time frame. When we switch the time frame from 15 minutes to 5 minutes, the horizontal line area has already been broken. Then we will wait for the pull back to place an order. In below case, when we will see the bullish candles after the pull back, we will place the buy order. While placing the buy order, we will set the take profit and stop lose.


Screenshot (6966).png


Screenshot (6965).png


Question 2. Explain in your own words the interpretation that should be given to a large strong movement in the market. What does the price tell us when it happens?



When the market is trending upward, there form some higher highs where each high is higher than previous high. This indicate that there is a bullish trend. Price move from down to top and continue to rise. Thus the bullish trend is continued. But a point come, when the investors fail to form a higher high higher than previous high. Here the Large strong movement is shown and market start moving in opposite direction. The market structure break and now price is expected to move in opposite direction. The trend reversal occur because of the Large Strong movement in the market.

Similarly, When the market is trending downward, there form some lower lows where each low is lower than previous low. This indicate that there is a bearish trend. Price move from top to down and continue to fall. Thus the bearish trend is continued. But a point come, when the investors fail to form a lower low more lower than previous low. Here the Large strong movement is shown and market start moving in opposite direction. The market structure break and now price is expected to move in opposite direction. The trend reversal occur because of the Large Strong movement in the market.

The Large Strong movement is nothing but a move of the whales or big institute at a particular point. The large strong movement of the whales influence the market highly and the trend usually change after these moves. If there was a bullish trend and the whales enter into the market and take a large strong move to opposite of the current market trend, the price will start declining and the downtrend will be occur.
Similarly, If there was a bearish trend and the whales enter into the market and take a large strong move to opposite of the current market trend, the price will start rising and the uptrend will be occur.

The whales and the big institute are the great influencer of the crypto market. They are powerful and can change the trend through their moves. When the invest a lot of money in an asset, the asset start rising upward. When they withdraw their money from the market after reaching at a particular point to earn profit, the market start declining. The good traders are those who follow the foot print of the whales in the market.


Question 3. Explain the trade entry and exit criteria for the buy and sell positions of the trading strategy with Price Action and Engulfing Candlestick Pattern in any cryptocurrency of your choice (Share your own screenshots taking into account a good ratio of risk and benefit)?


There are some points which we need to keep in our consideration while spoting the entering and exit spots in the crypto market.


  • Identification of Market Trend

First of all, we need to make it clear that there is a clean and clear trend in the market. Market should be in trending phase.
The price action should be clean and there should be harmony in the impulsive moves and retracement in order to set up this strategy. The pull backs and the impulsive moves should be equal on the price chart in form of a healthy and harmonic price action.


  • Identification of Large Strong Move

After identification of the trend, next thing is to identify the strong move. We now need to identify the strong moves. In order to confirm the trend reversal and make an entry, there must be at least 4 Large strong moves in the opposite direction of the dominants trend.


Engulfing Candle

After the trend reversal, when the price again pull back to previous direction, we will find there an Engulfing Candle. When the price again move in the previous trend and a pull back occur, we will look for the engulfing candle there.


  • 15 Minute Time Frame

After identifying the engulfing candle, we then need to mark the upper and lower zone of this candle with horizontal line. We draw these lines because this is the area of our interest which we will use to make an entry and to take the next trading decision. Then we switch the time frame from 15 minutes to 5 minutes. We drew these lines so that after switching the time frame, the horizontal zone is broken, then we will make an entry. For this we will wait for the large strong move of the whales to make the entry into the market. When the zone break after change the time frame, we can place the entry after looking for the clear break with the large strong moves in the chart.

But in case, the zone get not broken after switching the time frame from the 15 minutes to 5 minutes, we will wait for the price to pull back again so that we can look for the engulfing candle which fulfill our above mentioned requirements.


  • Buy and Sell Entry

When we switch the time frame from 15 minutes to 5 minutes, the horizontal line zone get break. When the zone get break, now we can make an entry in the market. We can place out order by setting the stop lose and take profit. In case of buy entry, the stop lose will be places a slight below to support level and in case of the sell order, the stop lose will be set a slight above the resistance level.


For buy

There was bearish trend and the price was declining. There were the lower lows where each low was lower than the previous low.

Then the large strong move was taken by the whales or big institute in opposite direction of the dominant trend and the price start moving in opposite direction. We can see in the below screen short that the whales has been entered into the market because a large move in upward direction is seen which mean that there is bullish trend. Bearish trend has been reversed into bullish trend. Now we will wait for a retrace back movement of price. When price pull back, we will find a engulfing candle and mark it upper and lower with horizontal lines so that when we shirt the time from 15 minutes to 5 minutes, we can identify it.


Screenshot (6968).png


We have switched the time frame, and the structure get broken. Now we place the buy entry.


Screenshot (6970).png

Sell Entry


There was Bullish trend and the price was rising. There were the higher highs where each high was higher than the previous high

Then the large strong move was taken by the whales or big institute in opposite direction of the dominant trend and the price start moving in opposite direction. We can see in the below screen short that the whales has been entered into the market because a large move in downward direction is seen which mean that there is Bearish trend. Bullish trend has been reversed into bearish trend. Now we will wait for a retrace back movement of price. When price pull back, we will find a engulfing candle and mark it upper and lower with horizontal lines so that when we shirt the time from 15 minutes to 5 minutes, we can identify it


Screenshot (6964).png


We have switched the time frame . Now we will place the order. Screenshot (6966).png


Screenshot (6965).png


Practical . Make 2 entries (One bullish and one bearish), using the “Price Action and Engulfing Candlestick Pattern” trading strategy. These entries must be made in a demo account, keep in mind that it is not enough to just place the images of the execution, you must place additional images to observe the development of these operations to be able to be correctly evaluated and see if they really understood the strategy.


Buy Entry

To buy the Coin, I will use the BTC/USDT chart. Below is the BTC/USDT chart of 15 minute time frame. There was bearish trend and the price was declining. There were the lower lows where each low was lower than the previous low.

Then the large strong move was taken by the whales or big institute in opposite direction of the dominant trend and the price start moving in opposite direction. We can see in the below screen short that the whales has been entered into the market because a large move in upward direction is seen which mean that there is bullish trend. Bearish trend has been reversed into bullish trend. Now we will wait for a retrace back movement of price. When price pull back, we will find a engulfing candle and mark it upper and lower with horizontal lines so that when we shirt the time from 15 minutes to 5 minutes, we can identify it.


Screenshot (6968).png


We have switched the time frame, and the structure get broken. Now we place the buy entry.


Screenshot (6970).png


Sell Entry


To buy the Coin, I will use the LUNA/USDT chart. Below is the LUNA/USDT chart of 15 minute time frame. There was Bullish trend and the price was rising. There were the higher highs where each high was higher than the previous high

Then the large strong move was taken by the whales or big institute in opposite direction of the dominant trend and the price start moving in opposite direction. We can see in the below screen short that the whales has been entered into the market because a large move in downward direction is seen which mean that there is Bearish trend. Bullish trend has been reversed into bearish trend. Now we will wait for a retrace back movement of price. When price pull back, we will find a engulfing candle and mark it upper and lower with horizontal lines so that when we shirt the time from 15 minutes to 5 minutes, we can identify it


Screenshot (6964).png


The below is the screen short of 5 minute time frame where the structure got broken. Now we will enter into the market for selling the coins.

Screenshot (6972).png

Screenshot (6966).png



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Conclusion


The Price Action and the Engulfing Candle Pattern is also a trading strategy which is use in the crypto market for analyzes. In this strategy, the engulfing candles are being used to enter or exit from the market using this strategy. This is the price action based strategy which we use when the market is in trending phase. The price action is use in this strategy to take the trading decision. This strategy is based on the price action so there is high need for the price to move in a clear direction in order to use this strategy. When there is a clear trend, this strategy work well and the traders get the high profit. I am thankful to professor @lenonmc21 for this amazing and informative lecture.

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