A Bullish Engulfing Pattern is a trend reversal candlestick pattern. It occurs when a small red (bearish) is followed by the next large green (bullish) candle. The body of the second candle completely engulfs the previous candle. Bullish engulfing Candlestick patterns work in every time frame, from a one-minute chart to a monthly chart.
Understanding The Bullish Engulfing Candlestick Pattern
A bullish engulfing pattern is a 2 candlestick pattern. The first candlestick has a small red body, and indicates that the bears were able to push the price down. The second candlestick has a large green body. It indicates that the bulls were able to push the price significantly higher. For the pattern to be valid, the second candlestick must completely “engulf” the first candlestick.
Example of a Bullish Engulfing Candle.
What Does a Bullish Engulfing Pattern Tell You?
Bullish Engulfing Candles is a reversal candlestick pattern. The pattern marks the bottom of a downtrend and indicates that the price may reverse soon. But what makes a Bullish Engulfing a reversal signal? Let’s try to understand.
The first candle of the pattern shows the dominance of the bears. However, the opening of the second candlestick is lower than the close of the first candlestick. Still, the close of the second candlestick is higher than the opening of the first. That is a sign that bulls are gaining control and pushing prices higher.
How to Trade with Bullish Engulfing
To trade with the Bullish Engulfing Candlestick pattern, consider a few pointers.
Previous Trend: The Previous or ongoing trend should be a downtrend
Area of Value: The Bullish engulfing pattern works best when formed near an area of value. An area of value is where the price is observed to react in a certain manner. Areas of value that work best with Bullish engulfing are Major Support zones, Moving averages and Bollinger Bands.
Stop loss: It is important to trade with proper stop loss orders. Stop loss order can be placed below the low of the Bullish engulfing candlestick.
Confirmation: It is important to wait for confirmation before entering any position. The pattern is confirmed when the price breaks and sustains above the high bullish engulfing candle. You can also use other technical indicators and tools to confirm the pattern.
Conclusion
In conclusion, the Bullish Engulfing Pattern is a trend reversal candlestick pattern which indicates a bearish to a bullish reversal in the market. The candlestick pattern occurs when a small red (bearish) candle is followed by a large green (bullish) candle that completely engulfs the previous candle. The pattern works in all time frames, from a one-minute chart to a monthly chart. As it marks the bottom of a downtrend, it is an indication that bullish momentum is likely to build, and the price is likely to move higher.
However, it is important to note that Bullish engulfing does not guarantee a reversal, so traders should always use it in conjunction with other tools and indicators.
Frequently Asked Questions
A: A Bullish Engulfing Pattern is a trend reversal candlestick pattern. Technical Analysts use that to predict Bullish reversal signals.
A: To identify a Bullish Engulfing Pattern, look for two candlesticks in a row. The first candle should be red. The Second Candle should be a big green candle that completely engulfs the first candle.
A: You can enter a long position when the pattern is confirmed by keeping the stop loss below the low of the bullish engulfing.
A: Bullish Engulfing is a reliable indicator, But it is important to note that, like other tools and indicators, bullish engulfing doesn’t work every time and in every situation.
Author
Drake Paul is the Co-Founder of Thrive In Trade and many more Educational institutions. For more than nine years, Mr. Paul has been enlightening people with his experience and has helped thousands of people learn the complex art of Technical Analysis and Money Making.