A Bullish Engulfing Pattern is a two-candlestick reversal pattern formed when a little black candlestick is followed by a massive white candlestick the following day, the body of which completely overlaps or engulfs the body of the previous day’s candlestick.
To “engulf” anything means to sweep over it, encircle it, or fully cover it.
One candlestick covers (or engulfs) another in the Bullish Engulfing pattern.
After a downtrend, this two candlestick pattern is made by one bearish candlestick (which is covered) and one bullish candlestick (which does the covering).
Look for the following critical elements to identify the Bullish Engulfing Pattern:
- A clear downward trend must be in effect.
- At the bottom of the downtrend, there should be a little black candle.
- A white candle must follow the black candle, and its body must completely cover (engulf) the black candle.
- The top of the white candle must be higher than the top of the black candle, and the bottom must be lower than the bottom of the black candle.
What does this mean?
When a Bullish Engulfing pattern develops in a downturn, it indicates that the bears were in charge.
There is a gap down, but the bears are unable to push the price any lower before the bulls regain control.
The price rises, and the candle closes higher than the open price of the previous candle.
This demonstrates a shift in attitude, with a gap down in the morning giving way to a big upward surge during the session, forming a massive bullish candle.
The bulls are in command, and a reversal is conceivable (though confirmation is still required).
Consider the following while analyzing a specific Bullish Engulfing pattern:
- The reversal pattern will most likely be effective if the preceding downturn was protracted and severe.
- The greater the candlestick pattern, the taller the white candle’s body.
