it's been a while since I last talked about our algos, and we just launched a new one that's performed incredibly well on NQ over the last year. I want to take you through it today - should only be about 5 minutes of your time.

this is a breakdown of how the engulfing candle 2TP algo works, the risk-reward data behind it, and a real backtest on NQ. if you already know how engulfing candles form, skip the refresher and jump to the section on where price actually goes after the pattern.

table of contents

• a quick refresher on the engulfing candle pattern
• where price actually goes after an engulfing candle
• so what does this mean for your profit targets?
• the solution: two profit targets instead of one
• how the engulfing candle 2TP algo works
• a real engulfing candle 2TP algo backtest on NQ
• combining the engulfing candle 2TP algo with other reports
• key takeaways

a quick refresher on the engulfing candle pattern

if you already know engulfing candles, skip ahead. if not, here's the 30-second version.

a bullish engulfing candle is when the current candle opens at or below the prior candle's close and closes at or above the prior candle's open, and the current candle is green. you enter long at the close of that candle, with your stop at the low.

a bearish engulfing candle is the inverse. the current candle opens at or above the prior close, closes at or below the prior open, and the current candle is red. you enter short at the close, stop at the high.

that covers entry and stop. the part most traders never look at, and the part the engulfing candle 2TP algo is built around, is what to do with your profit targets once you're already in the trade.

where price actually goes after an engulfing candle

knowing the entry criteria matters. knowing how far the setup tends to run after you're in matters more, and most traders don't have the data on it.

edgeful's engulfing candles by risk-reward subreport tracks every engulfing candle and measures how often price reaches each R multiple, 0.5R, 1R, 1.5R, 2R and beyond, before hitting the stop. that tells you exactly how far these setups tend to go.

according to edgeful data, here's NQ over the last 6 months in the NY session, for bullish engulfing candles:

• 0.5R target hit: 65.1% of the time
• 1.0R target hit: 46.0% of the time
• 1.5R target hit: 27.9% of the time
• 2.0R target hit: 19.1% of the time

bearish engulfing candles on NQ over the same window and session are close: 62.8% at 0.5R, dropping to 26.1% at 2.0R.

ES tells the same story over the last 6 months in the NY session. bullish engulfing candles hit 0.5R 60.1% of the time, then fall to 43.8% at 1R and 21.4% at 2R.

look at how fast that drops. on NQ, a half-R target hits roughly two times out of three. a 2R target hits fewer than one time in five. that drop-off is the whole reason a single fixed target is a bad fit for this pattern.

so what does this mean for your profit targets?

picture you're in an engulfing candles trade. you get a bullish engulfing candle on NQ and you're long.

if you set one target close, around 0.5R, you win most of the time but the wins are small. if you set one target far, around 2R, the few that get there pay well but you lose most of them on the way.

a single fixed target forces you to pick one of those. you either take the high win rate and leave the big moves on the table, or you chase the big moves and bleed on the ones that reverse.

that's the exact problem the engulfing candle 2TP algo was built to solve. you can see the same pattern across other setups too, which is why we wrote a whole breakdown on data-backed profit targets and how to set consistent exits.

the solution: two profit targets instead of one

the engulfing candle 2TP algo, as the name says, lets you run two profit targets on the same trade.

it takes half of the position off at a closer first target, then holds the rest for a second target further out. so you lock in the win that shows up most often, and you still have a position on to catch the runners.

that's exactly what the by-risk-reward data says you should do. closer targets hit far more often, so the algo books that win on part of the position while the rest stays on for the bigger moves that show up less often.

engulfing is a medium-to-high win rate, lower reward-to-risk strategy by nature. the 2TP structure doubles down on that: a lot of base hits and singles from the near target, plus the occasional runner that pays for itself. if you want the psychology behind why stacking base hits beats swinging for home runs, we covered that in trading psychology: the base hit approach.

this is the same logic behind the ORB algo with 2 take profit targets, applied to engulfing candles instead of the opening range breakout.

how the engulfing candle 2TP algo works

the algo doesn't reinvent the engulfing pattern. it perfects the execution of the strategy you already understand, and it runs the two-target exit automatically so you don't have to manage it in the heat of a trade.

here's the general mechanism:

• entry: the algo enters at the close of the engulfing candle, long on a bullish pattern, short on a bearish one.
• stop: the stop is derived from the engulfing candle's own size, with a dollar-risk cap so a single trade can't exceed the loss you've set.
• first target: half the position comes off at the closer target, banking the win that shows up most often, the one the by-risk-reward data points to.
• second target: the rest of the position holds for a further target to catch the bigger move when it shows up.
• re-entry: the algo can re-enter within the same session after a trade exits, so you don't miss the next qualified setup.

to trade the pattern manually, you'll want it plotted on your chart first. edgeful has an engulfing candles indicator for TradingView that marks every qualified setup so you're not eyeballing it.

a real engulfing candle 2TP algo backtest on NQ

I ran the engulfing candle 2TP algo on NQ through our optimizer and tested the strategy it landed on from June 2025 through June 2026, on a $50,000 account trading 2 contracts:

• +$128,897.56 net profit (+257.80%)
• 1,005 trades
• 65.07% win rate (654 wins)
• 1.598 profit factor
• $11,240.92 max drawdown (19.65%)

that 65% win rate is the same story the by-risk-reward data told us at the start. engulfing setups hit their closer targets more often than not, and the 2TP structure turns that into a steady stream of base hits plus the occasional runner.

a few things to be clear about, because these numbers are easy to misread:

• these settings are optimized using our algo optimizer. the default settings won't perform like this. it took about 3 minutes to find, but you still have to go through that optimization process yourself.
• this is a backtest, not a promise of live results. past performance over one window on one ticker doesn't guarantee anything going forward.
• getting an algo to work for your account takes customization, ongoing backtesting, and real effort. an optimized result on a screen is a starting point, not a set-and-forget.

combining the engulfing candle 2TP algo with other reports

the engulfing candle 2TP algo runs a complete strategy on its own, but the pattern gets stronger when it lines up with the rest of your read on the session.

• if price is breaking out of a key level and you get an engulfing candle in that direction, you've got confluence on the entry.
• if the directional bias from your other reports agrees with the pattern, that's a reason to lean into the runner rather than bank everything at the near target.
• if there's a logical level further out, like a prior high or an unfilled gap, that's a sensible place to anchor your second target.

for the deeper data behind why closer targets beat far ones on this exact pattern, the original engulfing bars trading strategy breakdown walks through the by-risk-reward report in full.

key takeaways

• the entry on an engulfing candle is the easy part. the money is made or lost on the exit, which is what the engulfing candle 2TP algo is built around.
• according to edgeful data, NQ bullish engulfing candles over the last 6 months in the NY session hit 0.5R 65.1% of the time but only 19.1% of the time at 2.0R. closer targets hit far more often.
• a single fixed target forces a bad trade-off: high win rate with small wins, or big wins you rarely reach.
• two profit targets solve that. bank the high-hit-rate win on half the position, ride the runner with the rest. the engulfing candle 2TP algo does that automatically.
• the NQ backtest (+257.80% over June 2025 to June 2026 on a $50k account, 2 contracts) used optimized settings. default settings won't match it, it's a backtest rather than a live guarantee, and getting it working takes customization and effort.
• to run the engulfing candle 2TP algo yourself, it's available at edgeful.com/algos.