The candlestick patterns become an essential part of technical analysis in helping a trader know which way the market is going with much more accurate information. While there are numerous patterns in the financial markets, two basic types—known as Pin Bars and Engulfing Candles—are amongst those crucial ones that every trader must be aware of. This article breaks down why these two patterns are so inescapable, how they work, and how a free EA tool can automate the identification process.
There exist hundreds of candlestick patterns; this reduces the trader to guesswork when it comes to differentiating the most critical market action patterns that prevail at the time of dynamic action in a live market scenario. Most interpretations of market signals are found to be wrong and end up in the missing of opportunities alongside inconsistent results on the part of various traders.
Luckily, there exists a streamlined methodology on candlestick analysis focused only on the two patterns: Pin Bars and Engulfing Candles. Such patterns do not only offer easy identifications, but they are very reliable as well in terms of market reversal. In the best place, you do not have to look for the patterns yourself. The “How to Trade” platform offers free of cost Expert Advisor tool that automatically detects Pin Bars and Engulfing Candles for you.
Understanding these two important patterns and using the EA tool can really make all the difference for traders in accurately executing their trades as well as save time. Let’s get a bit more in-depth on how these candlestick patterns work as well as setting up the EA tool to find them with little to no effort.
What Are Candlestick Patterns?
The first step therefore would be to know the basics before diving into Pin Bars and Engulfing Candles. Candlesticks are graphical ways of portraying changes in price within a specific window period. They show opening, closing highs, and lows for every time period. This could then become bullish or bearish depending upon the basis of price action. In essence, candle patterns are a multitude of these individual candlesticks that reflect possible reversals or continuations of the market.
Pin Bars: A Reliable Reversal Indicator
Pin Bars are considered one of the most straightforward yet powerful reversal patterns in the market.
What Is a Pin Bar?
A Pin Bar features a long wick, or “tail,” and a small body. The long wick means that price has been pushed in one direction but rejected at the price level so the closing is closer to the open. This shows a strong rejection of a particular price level and the potential for a reversal.
- Bullish Pin Bar: If the long wick is below the body then indicates buyers came in and made the price go upwards.
- Bearish Pin Bar: A bearish Pin Bar occurs when its long wick above the body indicating sellers took control and made the price going down.
Trading the Pin Bars:
Pin Bars usually occur with both the support and the resistance levels. Once that bullish Pin Bar appears near a level of support, it is a buy signal. If a bearish one seems to appear near a resistance level, it is time to sell.
Engulfing Candles: The Power of Reversal
The second must-know pattern is the Engulfing Candle, which signals reversals but in a slightly different structure.
What Is an Engulfing Candle?
An Engulfing Candle is a pattern in which a smaller candlestick is “engulfed” by the next larger one. It gives a complete overlap of the smaller one by the larger one. This is a strong reversal of the market mood.
- Bullish Engulfing Pattern: A bull pattern that occurs when there’s a small bearish red candle followed by a considerably larger bullish green candle. It tends to indicate a strong shift in pressure—from selling to buying pressure.
- Bearish Engulfing Pattern: A bearish engulfing pattern is when a smaller bullish (green) candle is consumed by a larger bearish (red) candle. This tells you that the sellers are now dominating the market.
Trading of Engulfing Candle
Engulfing patterns are at their most potent when seen at major zones of support or resistance. A bullish engulfing close to support will indicate that the buyers are returning in force, while a bearish engulfing close to resistance will show the sellers taking control.
The Problem with Manual Pattern Recognition
Although both Pin Bars and Engulfing Candles are fairly effective, they can be tricky to spot by hand. In fast-moving markets, they can be easy to miss or misread. This is where the free EA tool from How to Trade is useful for automating pattern recognition.
The How to Trade website offers a free tool of an Expert Advisor that will automate the scanning process to find Pin Bars and Engulfing Candles. Therefore, it will save your time since this tool continuously scans different markets in order to look for those patterns, and you’ll be capable of focusing on proper decision-making instead of hunting through the boards.
What the EA Tool Does:
- Pattern Recognition: It scans markets for Pin Bars and Engulfing Candles across various time frames, marking the pattern on your chart, so you can easily find out where trades are to be made.
- Bull/Bear Indication: It also indicates the bullish and bearish setup. For Pin Bars, it is indicated by a blue arrow for the long wicks if bullish and red arrow for bearish. For Engulfing Candles, this points out the pattern so that you can exploit the said potential reversal.
- Multiple Time Frames: The tool can be set to scan across any time frames from five minutes to daily charts. This freedom thus allows you to adapt to your trading style.
- Customization: The EA tool can be set to scan the market list it is performing on. Whatever preference you have in terms of your forex pairs, commodities, or stocks, the tool can adapt to that.
Installing the Free EA Tool
In installing the EA tool, the process is rather easy. Here’s how you can do it:
- Download the EA tool from the “How to Trade” website.
- Install it directly to your MT4 or MT5 trading platform.
- Open the market chart that you will analyze.
- Activate the tool to Identify Pin Bars and Engulfing Candles in these settings.
- Let the tool scan the markets for the patterns as you go through finalizing the trades.
It saves you much precious time and frustration with missing potential key setups in terms of pattern recognition. The combination of Pin Bars, Engulfing Candles, and EA tool may thus define an effective trading strategy.
Conclusion
Mastery of Pin Bars and Engulfing Candles is really game-changing trading. These two types of candlestick patterns give an unmistakable signal that the market may reverse, thus further cementing your trading position. This free EA tool from How to Trade enables you to automatically scan for those specific patterns so that you can pay more attention to executing profitable trades.
These two power candlestick patterns combined with the automation of the EA tool will be sure to take you all the way to the improvement of trading results.
