What is a Bullish Engulfing Pattern?
The bullish engulfing pattern is a two-candle reversal pattern. The second candle completely ‘engulfs’ the real body of the first one, without regard to the length of the tail shadows. The Bullish Engulfing pattern appears in a downtrend and is a combination of one dark candle followed by a larger hollow candle. On the second day of the pattern, price opens lower than the previous low, yet buying pressure pushes the price up to a higher level than the previous high, culminating in an obvious win for the buyers. It is advisable to enter a long position when the price moves higher than the high of the second engulfing candle—in other words when the downtrend reversal is confirmed.
A bullish engulfing pattern can be identified when a small black candlestick, showing a bearish trend, is followed the next day by a large white candlestick, showing a bullish trend, the body of which completely overlaps or engulfs the body of the previous day’s candlestick.
KEY TAKEAWAYS
- A bullish engulfing pattern is a candlestick chart pattern that forms when a small black candlestick is followed the next day by a large white candlestick, the body of which completely overlaps or engulfs the body of the previous day’s candlestick.
- Bullish engulfing patterns are more likely to signal reversals when they are preceded by four or more black candlesticks.
- Investors should look not only to the two candlesticks which form the bullish engulfing pattern but also to the preceding candlesticks.