Sometimes the smartest trading decision is to do nothing. This Engulfing on $TSLA looked interesting but had too many problems to trade safely.
What is an Engulfing Pattern?
An Engulfing pattern is a two-candle reversal pattern where the second candle completely "engulfs" the body of the first candle.
Key characteristics:
- Second candle's body covers the entire first candle's body
- Bullish engulfing: red candle followed by larger green candle
- Bearish engulfing: green candle followed by larger red candle
For details, see Investopedia's guide.
What Happened
An Engulfing pattern formed on $TSLA, catching many traders' attention. The pattern itself was valid - the structure was textbook-perfect. But the market context raised significant red flags.
The Warning Signs
The main issues that made this a NO_TRADE:
- Counter-trend setup: Pattern was against the weekly trend bias
- Poor location: Not at a meaningful support level
- Average volume: Volume didn't confirm the reversal
- Volatile name: $TSLA often traps traders with false signals
Counter-trend patterns statistically have lower win rates. When the weekly bias is against you, even valid patterns fail more often than they succeed.
The Lesson
Professional traders often talk about "sitting on your hands." This is a perfect example of why. Not every pattern deserves your capital. The best traders are selective - they wait for setups where trend, location, and volume all align.
How to Apply This
Before every trade, ask yourself:
- What could go wrong? List the risks
- Is this with or against the trend? Counter-trend = higher bar
- Would I take this trade 100 times? Think in probabilities
- Is there a better setup coming? Patience pays
If you can list more risks than rewards, pass on the setup and wait for a cleaner opportunity.
Trading is about probabilities, not certainties. The best traders don't win every trade - they avoid the bad ones and let the good ones run.
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