In the study of Candlesticks, a bullish engulfing pattern is formed when a small bearish candle is followed by a large bullish candle that overshadows or engulfs the previous candle. It demonstrates the weakness in a selling trend and pre-indicates a potential buying trend in the market. For instance, the sellers are exhausted and buyers are likely to enter the market.
Bullish Engulfing Pattern
A Bullish Engulfing Pattern is a two-candlestick reversal 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.
To “engulf” means to sweep over something, to surround it, or to cover it completely.
The 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).
To identify the Bullish Engulfing Pattern, look for the following crucial criteria:
- An obvious downtrend must be in progress.
- There should be a small black candle at the bottom of the downtrend.
- A white candle must follow the black candle and its body must completely cover the black candle (engulf it).
- The white candle’s top must be above the black candle’s top, and its bottom must be below the black candle’s bottom.
Meaning
Since a Bullish Engulfing pattern appears in a downtrend, you know that the bears were in control
There is a gap down, but the bears aren’t able to push the price very far before the bulls take command.
The price rises and the candle closes higher than the previous candle’s open price.
This shows a shift in sentiment, from a gap down in the morning to a strong upward surge during the session that forms a large bullish candle.
The bulls are in control and it seems that a reversal is possible (though confirmation is still needed).
To better analyze a specific Bullish Engulfing pattern, observe the following:
- If the preceding downtrend is long and significant, the reversal pattern will likely be effective.