The bullish engulfing candle surfaces at the bottom of a downtrend and indicates a rush in buying pressure. The bullish engulfing pattern usually triggers a reversal in trend as more buyers enter the market to push prices up. The pattern includes two candlesticks where the second candle completely engulfes the body of the previous red candle. Bullish engulfing candlestick pattern is one of the two engulfing patterns. The engulfing candlesticks patterns can be used to identify trend reversals and form a part of technical analysis.

For a bullish engulfing pattern to form, the stock must open at a lower price on Day 2 than it closed at on Day 1. If the price did not gap down, the body of the white candlestick would not have a chance to engulf the body of the previous day’s black candlestick. A bullish engulfing pattern the psychology of trading is a white candlestick that closes higher than the previous day’s opening after opening lower than the previous day’s close. The bullish engulfing candle pattern can be witnessed in action in the daily chart. In the bullish Engulfing pattern, the trend is shown in a downtrend.

Bear in mind that the Bullish Engulfing Candle can only be valid if it forms towards the end of a downtrend. In addition, the Bearish Engulfing Candle must have a small real body with a long upper shadow. When you’re confident that the bullish engulfing pattern is a signal to buy, enter the trade with a stop-loss and target profit. A stop loss should be set beyond the support level, below the shadow of the engulfing candle. The target is set around the upper resistance, as the highest liquidity for the instrument is there. The key to its reliability is the fact that it entails a strong reversal in market sentiment, with bulls taking control of the market after a period of bearishness.

  • The reason this pattern works so well is because of conviction in the market.
  • Ultimately, traders want to know whether a bullish engulfing pattern represents a change of sentiment, which means it may be a good time to buy.
  • This pattern triggers a reversal of the ongoing trend as more sellers enter the market and they make the prices fall.
  • We want the everyday person to get the kind of training in the stock market we would have wanted when we started out.
  • The first thing you want to do is identify the current market structure.

Establishing the potential reward can also be difficult with engulfing patterns, as candlesticks don’t provide a price target. Instead, traders will need to use other methods, such as indicators or trend analysis, for selecting a price target or determining when to get out of a profitable trade. Astute traders consider the overall picture when utilizing bearish engulfing patterns.

A bullish engulfing candlestick pattern can be a very good indicator for finding turning points in a stock. The pattern occurs when an up-candle (close above open) completely envelopes the prior down-candle (close below open). While many people will look for this candlestick pattern to try to find reversals in downtrends, the pattern can be very useful when it occurs in the same direction as the current trend. The following four stocks are all in uptrends and have seen recent pullbacks. The appearance of a bullish engulfing pattern in such an environment shows the bulls are still alive, and the stocks could be due for another wave higher. Bullish engulfing patterns are two candlestick patterns found on stock charts.

Bullish Engulfing Trading Strategies

For those who have been following me for a while, you know that I like to use the 50% entry method. Many traders believe that this method of entry only works with pin bars. The chart above illustrates the first two requirements of the pattern. Engulfing patterns are most useful following a clean upward price move as the pattern clearly shows the shift in momentum to the downside. The pattern is also more reliable when it follows a clean move higher. If the price action is choppy or ranging, many engulfing patterns will occur but they are unlikely to result in major price moves since the overall price trend is choppy or ranging.

The bullish engulfing patterns can be used in the form of fundamental signs for successful stock trading. You can see the price was consolidating for a while, but then a big green candlestick appeared, engulfing the previous red candle. We also see an inverted hammer candlestick, which is a reversal pattern that confirms the bullish engulfing pattern.


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. Traders and investors should not only look at the candles in question which form the bullish engulfing pattern but should also look at the preceding candles. The illustration above shows an engulfing candle where the range engulfs the previous candle but the body (open and close) are inline with the previous candle. This is okay because the range of the engulfing candle still completely covers the preceding candle. It is critical to pay close attention to this pattern and use it to your advantage if you want to succeed. If you notice a pattern known as a bullish engulfing, you can anticipate that buyers will be in control of the market and that the price will continue to rise.

It is a popular technical analysis indicator used by traders to anticipate bullish uptrend in the price of an asset. Before acting on the pattern, traders typically wait for the second candle to close, and then take action on the following candle. Actions include selling a long position once a bearish engulfing pattern occurs, or potentially entering a short position. One of the most dependable and often used candlestick reversal patterns is known as the bullish engulfing candle.

The MACD can be used to confirm the engulfing pattern by providing confirmation that the change in momentum from bearish to bullish is indeed taking place. The Bullish Engulfing Pattern Scanner is a valuable tool for any trader or investor who is looking to trade at market bottoms. With this scanner, you can easily find stocks that have formed this powerful reversal pattern. This can take the shape of a long candlestick with a small body and a slender wick extending far into the distance. Although the direction of the price is similar to the Hammer (Bullish Pin Bar) candlestick, BuE is a combination of two candlesticks (which takes a longer time). This is why this candlestick pattern is more reliable than the Bullish Pin Bar.

The formation of a bullish engulfing pattern in the GLD chart could indicate that prices of gold may have bottomed out and suggest a reversal in investor sentiment for gold. According to investment firm Nomura, a bullish engulfing pattern occurs after a significant downtrend in an asset’s price. The bullish engulfing candle signals reversal of a downtrend and indicates a rise in buying pressure when it appears at the bottom of a downtrend. The key to building confidence when trading the bullish engulfing candle is to complement the candle formation with a supporting signal/indicator.

Head and Shoulders Pattern: Your Guide to Massive Profits

You can see that after a downtrend, the price starts turning up near a support level. It happened at a support level, which makes it even more significant. If we break down the pattern, we can see that it starts with a doji candlestick, which means there’s uncertainty in the market. Then, a bullish inverted hammer candlestick appears, suggesting a possible reversal. Finally, we see the big green candle that engulfs the previous red candle.

Candlestick Cheat Sheet

This shift in market sentiment is usually enough to propel prices higher. Of course, no pattern is 100% reliable, and there are always exceptions. In general, though, the bullish engulfing pattern is a reliable indicator of a potential reversal in price. The bullish engulfing pattern is created when the open and close of the red candlestick are both tighter than the open and close of the green candlestick. The green candlestick should also be significantly larger than the red candlestick, indicating that there is strong buying pressure in the market.

For example, taking a short trade may not be wise if the uptrend is very strong. Even the formation of a bearish engulfing pattern may not be enough to halt the advance for long. Bullish and bearish engulfing patterns are powerful signals that can help traders determine when to enter or exit black swan event examples a trade. These patterns often occur at market turning points and can be used in conjunction with other technical indicators to confirm a trade setup. A bullish engulfing pattern is the opposite of a bearish engulfing pattern, which implies that prices will continue to decline in the future.

Trading the Bullish Engulfing Candle

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Moving average lines are usually a pretty important aspect of trading for people. They give confirmation of the trend and can be used for buy and sell signals as well as acting as support and resistance. Now, you could also compare the two bars inside the pattern to each other.

You can practice trading the bullish engulfing pattern for free on LiteFinance’s user-friendly trading terminal. Bullish and bearish engulfing patterns are signals that indicate a possible trend reversal in the stock market. When a bearish engulfing pattern occurs at a high, it signals the end of an uptrend, while a bullish engulfing pattern that forms at a low warns of an upward reversal. When you see two candles of a bullish engulfing pattern at a support level, it’s a sign that the price is likely to reverse and go up. This is a good time to enter a buy trade and set your stop loss just below the support level. On the other hand, if you see bearish engulfing patterns at a resistance level, it’s a sign that the price is likely to reverse and go down.