When I hear the word engulfing, I imagine a wave washing over a shore or a building being consumed by flames. To engulf means to sweep over something, to surround it, or to cover it completely. Thus, it should come as no surprise that a Bullish Engulfing pattern features one candlestick covering (or engulfing) another. This two candlestick pattern occurs after a downtrend and is formed by one bearish candlestick (which is covered) and one bullish candlestick (which does the covering). It occurs frequently, so it is important that you learn to identify and interpret it. Ready for a quick lesson? To learn more about the Bullish Engulfing pattern’s formation and meaning, simply scroll down.
Bullish Engulfing Pattern
Do you think you’ve spotted a Bullish Engulfing candlestick pattern? To identify this popular signal, you’ll need to look for the following crucial criteria:
First, an obvious downtrend must be in progress. Second, there should be a small black candle at the bottom of the downtrend. Third, a white candle must follow the black candle and its body must completely cover the black candle (i.e., engulf it). So, the white candle’s top must be above the black candle’s top, and its bottom must be below the black candle’s bottom.
As you’ve surely guessed, there is also a Bearish Engulfing pattern with the opposite formation. It features an uptrend followed by a white candle being engulfed by a large black candle, and it signals that the bears have gained control.
When you spot a Bullish Engulfing pattern, you know that the bears were in control (hence the downtrend). There is a gap down, but the bears aren’t able to push the price very far before the bulls take the reins. The price rises and the day closes higher than the previous day opened. This shows a great change in sentiment, from a gap down in the morning to a strong price escalation during the day that forms a large bullish candle. The bulls are in control and it seems that a reversal is on the horizon (though you still need confirmation).
To learn more about a specific Bullish Engulfing pattern, look for these characteristics:
- If the preceding downtrend is substantial, the pattern will likely be effective.
- The higher the top of the white candle’s body, the stronger the signal is.
- Follow-Through is required for the Engulf reversal to work.
As always, it is important to confirm a Bullish Engulfing pattern before you act on it. Keep the preceding and following days’ prices in mind, and don’t make any rash decisions. Although candlestick patterns can be used to predict the market, nothing is guaranteed. Identify the pattern carefully, assess its strength, and act accordingly. Good luck!
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