A Bullish engulfing pattern is a reversal pattern that occurs over two days. You can see that It is distinguished by two opposite- coloured real bodies, where the second day’s real body totally engulfs the first day’s real body.
How do you spot a bullish engulfing pattern?
No sweat, spotting this trend is super easy all you have to do is :
- Check if a downtrend is in progress.
- Then look at the first day candle, it must be BLACK!
- Next, look at the second days’ candle. The opening of day two shows a gap from the close of day one; the longer the space on the bottom, the greater the gap and the stronger the indicated reversal. What you will actually see is that the second day’s body completely engulfs the first day’s real body.
- The colour of the second day’s real body must be green.
What’s happening in the market? How does this pattern form?
If there ever was the most bullish of bullish reversal patterns, then Bullish Engulfing would be one of them. It is formed because, on the second day, a counterattack by the bulls cancels all the downward pressure exerted by the bears on the first day. Bulls,do so by making a close above the first day’s open.
What action to take in case of Bullish Engulfing pattern?
- Buy signal. No confirmation is required for the aggressive trader.
- For conservative traders, a bullish confirmation is suggested.
How to confirm a buy signal?
- Make sure that the third candle has closed above the highest high of candles 1 and 2.
- Place sell-stop below the lowest low of candles 1 and 2.
- This signal works best after the market has been in a sustained downtrend and suggests a possible price reversal.