The Best Engulfing Pattern Indicator

Trading using Price Action methods requires constant vigilance from the trader — you never know where and in what form a setup will appear. Here everything simply comes down to the human ability to simultaneously monitor a large number of charts.

Today we will look at probably the best engulfing pattern indicator — VerticalBarSetup. The indicator not only signals the appearance of new setups, but also automatically calculates the entry level, stop-loss and take-profit of the trade. In addition, the indicator visualizes trading performance on history, marking on the chart trades closed by stop-loss and take-profit orders.

The engulfing pattern is, in a way, the inside bar in reverse. In this case, the outside candle sort of “engulfs” the one before it, which indicates a dramatic change in market sentiment.

Usually this setup forms during uncertainty — the market has not yet decided where to go, as a result of which we observe temporary consolidation. The next candle resolves the dispute by engulfing the previous one, bringing fresh liquidity into the market. Breaking the extremes of the final candle is an important signal of a trend change.

The indicator is installed in a quite standard way. First, go to File — Open Data Folder, and then open the MQL4 — Indicators directory. Place the indicator file there and restart the terminal.

Launch the indicator by dragging it from the navigator window onto the chart. The settings window will open.

Main indicator settings:

Entry settings:

Stop-loss settings (StopLoss):

Take-profit settings (TakeProfit):

The indicator highlights past setups on the chart as red and blue icons (the colors can also be changed in the settings). At the same time, all successful setups are displayed as a check mark inside a square, while a stop closure is shown as a cross. This allows you to determine at a glance the profitability of the strategy over a given segment of history.

The indicator signals a found setup after an additional condition is met — besides the formation of the engulfing pattern itself, the next candle must close above its high. Thus, we enter the trade only after breakout confirmation.

After identifying a new setup, the indicator highlights on the chart the engulfing pattern formation zone, as well as the trade entry level, its direction, stop-loss, and take-profit. The indicator allows you to calculate two profit targets, but price does not always reach the second target.

As an option, the position can be divided into two parts. We close the first part when the first profit target is reached, after which we move the stop to breakeven. Thus, the second part of the position will either close at breakeven or at the second take-profit.

It should be taken into account that this pattern shows the result of a local struggle between bulls and bears within a few candles and does not reflect the long-term picture. In this regard, the rule of entering with the trend has not been cancelled, and using an additional trend filter, even in the form of a simple moving average, is a quite reasonable decision.

Also, take into account zones and support levels in your trading. As is known, in the absolute majority of cases price bounces off a level, so the correct strategy is to trade precisely on the bounce. That is, if the wick of the engulfing candle falls on an important resistance/support level, you need to enter in the direction opposite to the level.

Objectively, this is one of the best indicators for trading the engulfing pattern. The main distinguishing features of the indicator are visualization of the pattern’s historical success, automatic calculation of the entry level and stop orders, as well as timely signaling when new setups appear — engulfing pattern + confirmation.

With respect, Alexey Vergunov TradeLikeaPro.ru