Bullish Engulfing Pattern

What are Bullish Engulfing Candlestick Pattern?

Bullish Engulfing Pattern is a reversal candlestick pattern which is bullish in nature and appears at the end of a down trend. It is a complex pattern made of two candlelines. The first candle is bearish in nature and the second is bullish in nature.

It has its name because the real body of the second candle engulfs the real body of the first candlestick. It is one of the important pattern, which you should give attention to.


How Bullish Engulfing Candlestick Pattern are formed?

Bullish Engulfing Pattern is formed by the combination of two candlesticks. The first one is a falling black candle and the second is the reversal white candlestick.

The market is in a down trend. The price opens at almost high of the day and as usual the sellers continue to sell. At the end of the session the price closes almost at the bottom for the time period. This results in the formation of bearish black candle, which is the first candle of the Bullish Engulfing Pattern.

On the next day or next time period the price opens below the low of the real body of the previous bearish candlestick. Sellers are making new short trades. Those who are already short in the market are also adding to their position. But the smart money creeps in and starts accumulating shares from these ignorant sellers. As the demand increases the momentum decreases and the prices starts rising. As the prices rises the bears are happy to sell more at a higher price. This facilitates bulls to accumulate more shares at lower price.

The demand continues to increase more than the supply, pushing the price up. As the new short sellers are all in loss, they also start to buy back to minimize their losses. Sensing the change in the trend, the old bears starts booking profits in their short positions. As the bulls continue to increase their long position, the price rise further and at the end of the session the price closes above the real body of the previous candle. This results in the formation of bullish white candle, which is the second candle of the Bullish Engulfing Pattern and it engulfs the real body of the previous candlestick.

Bullish Engulfing Pattern is a major bullish reversal candlestick pattern. They occur at the bottom of a down trend.

    For this to occur...
  • There has to be a clear down trend, whether major or minor.
  • The first candle is usually a black candle signifying an ongoing down trend and the second candle is always a white candle.
  • The second day white candle's real body engulfs the first day black candle's real body.



Study the chart given below. 

Bullish Engulfing Candlestick Pattern of Candle Charting for Technical Analysis in Stock Trading


What is the significance of Bullish Engulfing Candlestick Pattern?

It is obvious that the buyers are taking over the control of the market. It signifies that the bottom reversal of the down trend is unveiling.

    Its importance increases...
  • If the first day's real body is very short and second day's real body is very tall.
  • If the second day is accompanied by high volume
  • If it is a minor down trend in a major up trend.
  • If the second day's real body engulfs both body and shadows of the first day, that is first day's complete move.
  • If the second day's real body engulfs more than one previous day's real bodies.



It is a more powerful signal than Piercing Pattern because the action of bulls is more evident in Bullish Engulfing Pattern than in Piercing Pattern.

The significance of this Bullish Engulfing Pattern increases if the second day's opening is below a support area and the close is above the support area. If the second candle is a white marubozu or with a shaven head or shaven bottom, it speaks of the more bullishness of the market. Its importance is even more if it is accompanied by increased volume.

If you are holding a short position, Bullish Engulfing Pattern should alert you to take action the next day. One can cover her short position above the high of the second day's white candle.

A long trade can be entered above the high of the second day's white candle. Place a sell on stop order below the low of the pattern to limit your loss, in case the down trend continues to go down.

Sometime first day's real body can be white, if it is a very small body. First day can also be a doji.

 

Bullish Engulfing Candlestick Pattern of Candle Charting for Technical Analysis in Stock Trading


Bullish Engulfing Candlestick Pattern may occur along a down trend without a reversal. It only exhibits a minor profit booking by bears.

Counter part of this pattern in a candle chart is Bearish Engulfing Pattern.


Related Readings

There are many more complex candlestick patterns used in stock analysis. Some of them are listed below. You may click on the name of each pattern listed below to learn and understand more about them.

  • Dark-cloud cover
    Dark cloud cover is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
  • Piercing Pattern
    Piercing Pattern is a bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
  • Bearish Engulfing pattern
    Bearish Engulfing Pattern is a major bearish reversal candlesticks pattern. They occur at the top of an up trend.
  • Morning star
    Morning Star is a bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
  • Evening star
    Evening Star is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
  • Morning doji star
    Morning Doji Star is a bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
  • Evening doji star
    Evening Doji Star is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
  • Three white soldiers
    Three White Soldiers is a candlesticks pattern formed by a group of three white candles, which shows the strength of the advancing market.
  • Three black crows
    Three Black Crows is a candlesticks pattern formed by a group of three black candles, which shows the strength of the declining market.
  • Harami
    Harami is a candlesticks pattern, which shows the indecision of the market. In Japanese language, it means, pregnant. It is made of two candles, one containing the other.
  • Gaps
    Gaps are continuation chart pattern, formed by an unfilled space between two trading session. Gaps are referred as Tasuki, meaning window in candlestick charting.
  • Island Formation
    Island Formation is a reversal chart pattern, formed by price action in a group of multiple time period, which is separated from rest of the price action by gaps. It is very reliable with 80% probability.
  • Abandoned Baby
    Abandoned Baby is a reversal chart pattern, formed by price action in a single time period, which is separated from rest of the price action by gaps. It is very reliable with 80% probability.



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