Small Timeframe Engulfs for Entry

As I’ve mentioned in previous articles, the engulf is one of the most important pieces of price action that I use for making trading decisions. Whether trading long or short term, an engulf of some kind will be used in the trading analysis.

The daily chart is great for identifying major supply and demand in the market and the recent trade example showed that the engulf of supply on the H1 chart was the signal required for entry at a demand level. The opposite of course is true for trading from a supply level. Whilst I like this type of confirmation on the H1 chart, this may not suit every currency pair out there.

All pairs have their own characteristics so although all price movement will be based on supply and demand on each one, the way price moves to and from the levels may differ.

When price hits supply or demand, the nearest opposing level can be over a 100 pips away. Some pairs will travel 100+ pips, engulf the opposing level and continue on without coming back to the origin of the move.  For pairs where this occurs, the H1 engulf confirmation wouldn’t be suitable. We could ignore these pairs and that’s fine or we can adopt another confirmation approach so that we can still benefit from these moves.

The process is very similar to the one previous mentioned but for the type of confirmation.

Daily Analysis

The chart below is a great example of a quality demand level. Price left a consolidated area in a very strong fashion. A large candle leaving the left shows how great the supply and demand imbalance was. This was marked up on my charts for a while.

A09 Image 1 Daily Demand

Approach

Some nice big red candles dropped back into the zone showing that there was nothing significant to stop price moving higher which was another plus for the setup.

Confirmation and Entry

We know that the nearest H1 supply is over a 100 pips from the demand zone. Pairs like the GBPAUD can easily engulf that opposing supply and not look back. An option here is to wait for an engulf of a 15m level and retrace to fresh demand prior to price reaching the H1 supply. The stop stays small and we can still get into the trade with confirmation albeit not the the H1 confirmation.

A09 Image 2 H1 Supply

In this example we have a 15m supply and demand flip zone. The nearest 15m supply is engulfed and demand is formed in it's place right at the same spot as the previous supply. This is where you can enter.

A09 Image 3 15m Entry

Exit

  • We can exit all at the H1 supply just in case price is rejected
  • We can take partial profits at the H1 supply, move the stop to BE and hold the remainder
  • We can hold all till the target

Your exit decision will depend on your trading style and risk tolerance.

Another example occurred on the GBPAUD at the same time. You can see it here below:

A09 Image 4 Daily Demand

 

A09 Image 5 H1 Supply

A09 Image 6 15m Entry

I hope you found this useful.

Happy Trading

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10 Comments

  1. lamar on January 20, 2014 at 12:44

    Excellent article.

  2. Gokeplus on January 20, 2014 at 15:21

    Another great article!

  3. Joe Wright on January 29, 2014 at 07:41

    Thanks guys. I’m glad you liked it.

  4. naveen on December 10, 2014 at 11:13

    Your way of explaining the concept is very good. I am reading all the articles now. Thanks once again.

  5. BasilB on August 27, 2015 at 16:19

    Joe, thank you! I practice S&D because I am OTA student but your price action technique combined with Core strategy can move any of us (students) to another level! I hope so! Thank you very much for your articles!

    • Joe Wright on August 27, 2015 at 20:52

      Hi Basil. I’m glad your finding it useful. How’s the OTA course going? I’ve never been so I’d be interested to hear how people find it.

      • BasilB on August 28, 2015 at 07:19

        OTA course work out very good! Many earning traders came among graduates. Many teachers are former students, who make A LOT of money. But everything not that simple. OTA only gives you kinda ground level, basemnt and you got to build your house by your own hands, nobody gonna be able to “cut corners” after the course you still need to walk that distance from novice to master… However without OTA it would be so much longer to learn, so I am grateful and we have live trading sessions each week 2-3 times when instructor gives trading ideas, so definetly you never be broke following their rules and strategy.

  6. GabanSama on January 4, 2016 at 17:44

    Very useful.

  7. neville on March 5, 2016 at 10:21

    hi Joe
    do you wait for 5min engulf enter and exit strategies after the 15min confirmation?
    regards Neville

    • Joe Wright on March 8, 2016 at 22:06

      Hi Neville, At the moment I’m using 15m engulfs for entries and trailing behind 15m SD. The approach is this article offers some different suggestions.

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