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Stan Ehrlich is a veteran market analyst and trader whose career stretches back to 1971. He’s known for pioneering cyclical analysis with his original Ehrlich Cycle Finder, decades on the global lecture circuit, and a practical, rules-driven approach that blends classic tools with modern execution. In this interview, Stan explains how his experience across futures, forex, and equities shaped a simple but powerful framework for timing turns and managing risk—why he favors RSI (with custom thresholds) and how he layers price action on top to make decisions fast and clean.
You’ll learn Stan’s core setup—custom RSI bands for overbought/oversold, confirmation via bullish/bearish engulfing candles, and two entry modes (enter on signal or on a quick pullback)—plus how he trails exits dynamically instead of using fixed profit targets. We’ll cover his emphasis on immediate protective stops, why “how you use the tool” beats the tool itself, and how seasonal tendencies and cycles can frame higher-probability windows. If you’re a newer trader looking for a straightforward playbook that travels well across markets, this breakdown will show you exactly how Stan Ehrlich thinks, times, and protects each trade.
Stan Ehrlich Playbook & Strategy: How He Actually Trades
Core Setup: RSI Bands + Engulfing Confirmation
This is the heartbeat of how Stan gets in sync with the market. He watches momentum extremes first, then asks price action to confirm—clean, visual, and fast to execute.
- Use RSI(14) with custom bands at 35/65 (not the vanilla 30/70) to catch turns a touch earlier.
- Consider an even tighter swing setting like RSI(7) with 40/60 bands for intraday futures or FX.
- Only act when price prints a clear bullish/bearish engulfing candle in the signal zone.
- Treat any engulfing against the direction of the last swing high/low as higher quality.
- Skip signals that form inside chop (tiny range vs prior 10 bars).
Entries: Immediate vs. Pullback
Stan keeps entry logic binary so execution stays crisp. Choose one mode before the session and stick to it.
- Immediate entry: enter on the close of the confirmed engulfing bar.
- Pullback entry: place a limit at 33–50% retrace of the engulfing candle range; cancel if not filled by the next two bars.
- If signal triggers within 2 bars of a major level (prior swing, VWAP, or daily open), favor the immediate entry.
- Never chase beyond the engulfing bar’s high/low; if missed, wait for the next setup.
- One setup per direction per swing—avoid stacking late entries.
Protective Stops: First, Fast, and Fixed
Stan’s first rule is always defense. Get risk defined the moment you click.
- For long trades, stop 1–2 ticks/pips below the engulfing bar’s low; for shorts, above its high.
- If using the pullback entry, place the stop beyond the signal bar’s extreme plus a small buffer (ATR-based).
- Risk a fixed fraction of equity per trade (e.g., 0.5%–0.8% for newer traders).
- Cut size when volatility jumps: if ATR(14) > 1.25× its 3-month median, halve your position.
- If the price hesitates for three bars without progress, tighten to break-even.
Exit Logic: Trail the Move, Don’t Predict the Top
Rather than guess targets, Stan lets structure and momentum walk him out of the trade.
- Use an ATR(14) multiple trail: start at 1× ATR once trade is +0.75× ATR in profit; widen to 1.5× after a HH/LL.
- Alternatively, trail under/over the last two swing lows/highs on your execution timeframe.
- Take a partial at +1R if volatility is high; otherwise, hold full for structure-based exit.
- Exit on an opposite engulfing against your position after an extended run (3+ legs in your favor).
- If RSI re-enters the mid-zone (45–55) and stalls for 5–7 bars, scale down to reduce give-back.
Multi-Timeframe Map: Frame on Higher, Execute on Lower
Stan wants context from above and precision below. This keeps you trading with the tide, not against it.
- Define bias on the higher timeframe (daily/4H): rising swing structure and RSI > 50 = long bias; falling and RSI < 50 = short bias.
- Execute on the lower timeframe (H1/M15/M5 depending on market/liquidity).
- Only take signals aligned with higher-timeframe bias unless a clear cycle turn is due (see next section).
- If the higher timeframe is sideways (range width < 1.2× ATR), tighten profit management and expect mean reversion.
- Hard rule: no counter-bias trades during high-impact sessions (cash open, NFP first 15 minutes, etc.).
Cycles & Seasonality: Time the “When,” Not Just the “Where”
Cycles help Stan anticipate windows when signals matter more. They’re a frame, not a trigger.
- Identify recurring turn windows (weekly/monthly tendencies around roll, FOMC weeks, quarter ends).
- On days inside a known cycle window, give more weight to reversal signals; outside them, favor trend-continuation.
- If a cycle window aligns with higher-timeframe support/resistance, prioritize A+ setups only.
- Reduce trade frequency when the cycle and higher-timeframe bias disagree.
- Keep a simple calendar of cycle windows to prep the week every Sunday.
Market Selection & Sessions: Trade Where Your Edge Is Clean
Stan’s method travels across futures, FX, and equities, but he’s picky about liquidity and session behavior.
- Focus on instruments with tight spreads and smooth intraday rotations (e.g., index futures, liquid FX majors, top-volume stocks).
- Trade the sessions that produce the cleanest engulfing signals for that instrument (e.g., London for FX, New York for indices).
- If spread/commission exceeds 15% of the average take-profit distance, skip the market.
- Avoid the first two minutes of any cash open; wait for the first swing to print before acting.
- Cap correlated exposure: only one position per theme (e.g., ES + NQ counts as one).
Volatility & Position Sizing: Let ATR Set the Pace
Sizing flexes with volatility, so the same pattern doesn’t swing P&L wildly.
- Position size = (Account × Risk%) ÷ Stop distance; compute stop using the signal bar or ATR buffer.
- When ATR(14) > 1.5× its 3-month median, cut size by 30–50% and favor pullback entries.
- When ATR compresses (< 0.8× median), reduce expectations; scale out at +0.8R to bank.
- If slippage averages > 25% of intended risk over 10 trades, reduce size until it normalizes.
- Never widen stops after entry; reduce size first, always.
A+ Setup Checklist: Before You Click
This pre-flight keeps Stan consistent when speed matters most.
- Higher timeframe bias is clear and in your favor.
- RSI signal touches the band (35/65 or your chosen variant) on the execution timeframe.
- Clean bullish/bearish engulfing confirms the turn or continuation.
- Stop location objective and sized to pre-set risk %.
- No conflicting news/events within the next 15 minutes.
Trade Management Playbook: After You’re In
Managing the position is where professionalism shows up. Follow the script.
- Move stop to break-even after +0.8R or after a higher low/lower high form, whichever comes first.
- If momentum accelerates (RSI > 65 in longs or < 35 in shorts for 3+ bars), trail by structure, not ATR, to stay in.
- If price returns inside the engulfing bar and closes there, trim 30–50% and keep the trail.
- When a second engulfing appears in your favor after partials, you may pyramid lightly (max +50% of initial size).
- Hard exit on opposite engulfing following RSI mid-zone loss.
Filters That Save You: Keep the Garbage Out
Stan’s edge is as much about what he won’t trade as what he will.
- Skip signals that form inside yesterday’s narrow range unless a session open breaks it.
- Ignore engulfings with tiny bodies relative to wicks (>60% wick = weak intent).
- Avoid trades during low-liquidity pockets (lunchtime drifts, pre-holiday).
- Do not trade signals that collide immediately with major levels (yesterday’s high/low, weekly open) unless the level breaks first.
- If three losing trades occur in a session, stop trading for the day.
Record-Keeping & Feedback Loops: Make the Edge Sharper
The method improves when you measure what actually happened.
- Journal each trade’s RSI reading, engulfing size (in ATRs), and stop distance; tag win/loss and R multiple.
- Review weekly: which session, instrument, and entry mode (immediate vs pullback) produced the best R?
- Prune one low-performing instrument or timeframe every month; add one only after 30 test trades.
- Screenshot the signal bar and the next two swings for pattern memory.
- Recalculate ATR medians monthly to keep your sizing rules current.
Fast Start Settings (If You’re New)
Here’s a simple default to start practicing the framework without overthinking.
- Markets: one index future (or CFD), one FX major.
- Timeframes: 4H for bias, 15M for entries.
- RSI: 14 with 35/65 bands; engulfing confirmation required.
- Risk: 0.5% per trade; stop beyond the signal bar with a small ATR buffer.
- Management: partial at +1R, trail by last two swing lows/highs until exit.
RSI Bands and Engulfing Signals: A Simple, Repeatable Entry
Stan Ehrlich keeps entries clean by pairing momentum extremes with obvious price action. He watches RSI press into customized bands—think 35/65 instead of the usual 30/70—then looks for a bullish or bearish engulfing candle to confirm intent. The combo filters out a lot of noisy wiggles and puts him in only when buyers or sellers plainly take control. If the engulfing prints away from a messy range and near a prior swing, he treats it as higher quality.
Once the confirmation fires, Stan Ehrlich either hits the close of the signal bar or sets a modest pullback limit around a third to half of that bar’s range. He never chases beyond the engulfing extreme, preferring to wait for the next clean handoff of momentum. If RSI snaps back inside mid-zone without follow-through, he stands down rather than forcing the idea. The mantra is simple: momentum flags the opportunity, the engulfing candle grants permission, and discipline keeps the entry repeatable.
Size by Volatility, Not Ego: ATR-Driven Risk Per Trade
Stan Ehrlich sizes positions to the market’s mood, not to a fixed dollar fantasy. He starts by defining risk as a small, consistent percent of equity, then scales the position using the current ATR so every trade risks roughly the same “R” despite changing volatility. When ATR expands, its share or contract size shrinks; when ATR compresses, size can gently increase—never stop. This keeps losers survivable and prevents a single wild day from hijacking the equity curve.
Stan Ehrlich also links execution to the stop distance implied by the setup. If an engulfing signal demands a wider stop, he reduces contracts so the cash-at-risk stays constant, avoiding the trap of widening stops post-entry. He watches for regime shifts—ATR jumping to 1.3–1.5× its recent median—and automatically cuts size further during those spikes. The net effect is calm math: let volatility dictate size, keep risk per trade steady, and preserve headspace for reading the next setup.
Trail Winners by Structure, Exit on Opposite Momentum
Stan Ehrlich doesn’t guess tops; he lets structure escort him out. Once a trade moves, he tucks the stop beneath the most recent higher low for longs (or above the lower high for shorts) and advances it only when a new swing forms. If momentum accelerates, he keeps trailing by those swing points rather than tightening arbitrarily, allowing the trend’s natural rhythm to breathe. The goal is to capture the middle of the move while avoiding the death-by-a-thousand-ticks that comes from over-managing.
When momentum flips, Stan Ehrlich listens. An opposite engulfing candle after an extended run is a hard cue to flatten, especially if RSI slides back through the mid-zone and stalls. If the price closes back inside the original signal bar without immediate follow-through, he treats it as a warning and reduces exposure rather than hoping. He prefers giving back a sliver of open profit to protect the bulk because the next clean setup is always more valuable than squeezing the last dime from a fading trend.
Frame on Higher Timeframe, Execute Clean on Lower
Stan Ehrlich starts by deciding the tide before he worries about waves. He reads structure on the higher timeframe—daily or 4H—to label markets as trending up, trending down, or ranging, and he won’t fight that label. If swing highs and lows are stepping higher and RSI sits above 50, he calls it a long-only environment until proven otherwise. That top-down filter means fewer false starts and clearer expectations for how far a move can travel.
With bias set, Stan Ehrlich drops to a lower timeframe to hunt for precise execution. He wants the same story—momentum aligning and an engulfing trigger—but now he places stops and entries with surgical clarity around recent micro swings. If the higher timeframe is messy or boxed in, he anticipates mean reversion and tightens management, refusing to treat every blip like a breakout. This rhythm—big map first, then sharp trigger—keeps him patient when the backdrop is muddy and aggressive when the wind is finally at his back.
One Setup, One Theme: Discipline Over Prediction Every Session
Stan Ehrlich keeps the day simple: pick one setup, commit to one market theme, and ignore the rest. If the theme is trend continuation, he won’t switch to bottom-fishing just because a candle looks cute. By narrowing focus to a single, repeatable pattern, he protects execution quality and emotional capital. Stan Ehrlich also predefines the invalidation for the theme—lose the higher-timeframe bias or break a key level, and the day plan is done, not “adjusted.”
He treats distractions as leaks in P&L. No second setup appears just because the first one didn’t fire; no revenge trade appears because the morning felt slow. After three clean attempts or a set daily loss limit, he shuts it down and reviews rather than forcing outcomes. The point isn’t to predict the day’s headline move but to express one well-tested edge with professional restraint. That consistency compounds faster than any hot take on where the market “should” go.
Stan Ehrlich’s core lesson is timeless: it’s not the tool, it’s how you use it. He came up through the pits in the early 1970s and built a career that blends artisan-like cycle work with modern, rules-first execution. From inventing a simple plastic “cycle finder” and teaching on the global circuit to adopting RSI as his go-to momentum gauge, his edge lives at the intersection of timing and discipline—anticipating windows with cycles, then demanding a clean, price-action confirmation before risking a dollar.
Practically, Stan Ehrlich looks for RSI to flag extremes and for an engulfing candle to grant permission, then he acts with exact entry/stop rules and immediate protection. He treats seasonality and cycle windows—like the historically strong October pattern—as context to weight signals, not as standalone trades. The throughline is consistency: define risk first, size to volatility, let structure trail winners, and let momentum flips escort you out. In short, cycles frame the “when,” RSI and engulfings define the “how,” and protective stops keep you in business long enough for the math to work.
