I came across this trading system on the web this evening.
A free trading system, which if you are able to stick with and follow the rules, should produce substantial profits. It’s extremely simple and is based purely on price action. It is based on japanese candlestick charts. I will not cover candlestick basics as there is a ton of great free info out there already. As a starting point check out the chart education section at stockcharts.com.
The system is based around a candlestick pattern called an ‘engulfing pattern’. It is also know as an ‘outside day’ in western charting. The pattern in hilighted in blue in the chart above. It is a reversal pattern. Here is the description from stockcharts.com:
A reversal pattern that can be bearish or bullish depending upon whether it appears at the end of an uptrend (bearish engulfing pattern) or downtrend (bullish engulfing pattern). The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day’s body.
Now for the entry and exit rules.
Use on 5 minute charts. Wait for an engulfing pattern to form capping off a clear trend.
Entry: enter on the close of the engulfing pattern. Place a stop 3 ticks above the high or low of the entry candle.
Exit: place a profit stop order at twice the distance of the stop loss order, so the risk reward is 2:1.
; "Candlestick engulfing")
