I’ve just started a series of lessons on candlestick patterns that I want to share with you. Today we’re on Lesson 1, and the topic is the engulfing candle, a pattern that’s really worth mastering if you want to improve your trading.

The first thing you need to know is that the engulfing candle is incredibly useful for spotting trend changes. You usually see it right when a trend is running out of steam. Imagine we’re in a strong decline and suddenly a bullish engulfing candle appears that completely covers the previous candle—that’s a sign that momentum is shifting.

Now, how to identify it is the most important part. You need to see that an engulfing candle covers everything before it, not just the body but also the wicks—both the upper wick and the lower wick. It’s as if the new candle wraps up the entire previous one. When you see it like that, you know something is happening in the market.

To trade with this pattern, I recommend two approaches. Some people enter immediately when they see the engulfing candle, but others prefer to wait until the price tests the midpoint of that candle’s body again, and only then do they enter. Both strategies work—it depends on your style.

As for the stop loss, this is where many people get it wrong. Ideally, you should take the entire wick of the engulfing candle and add approximately one-third or half of the body. This helps you avoid getting swept by liquidity stops that tend to be present at those levels.

The engulfing candle can be your entry into a trade, or simply a confirmation of a trend reversal. It all depends on how you analyze the context and what the chart tells you at that moment. So I invite you to study this, practice it on your charts, and tell me how it goes for you. This series is just beginning, and I hope you follow along, share your experiences, and together we keep improving. The goal is for all of us to equip ourselves with better knowledge to trade more intelligently.