The bullish engulfing candle pattern is a pattern of a trend reversal. In general, it appears when a downtrend is going to an end. It indicates a change in trend, the development of an uptrend, to be precise. As the name implies the pattern is formed by a pair of candles.
Candle number one. The candle is orange and it is called a bearish one.
Candle number two. Immediately after the first one, the green candle shows up. It has the name of a bullish candle and it is longer than the previous one. It opens lower than the previous closing price and closes above the previous opening price. It totally engulfs the orange one, hence the name: bullish engulfing candle pattern.
The most expected and valuable situation for Olymp Trade traders is when the candle body has inside whole previous candle with its wicks but it does not happen so often on intraday charts of most liquid assets.
What is the interpretation?
When the downtrend goes on for a longer time period, the sellers remain worn out. You will notice a small bearish candle on the chart. The next session will most probably start with an abrupt price fall. This is the moment when the buyers rush in causing prices to rise. At the end of this session, the trend will reverse. And this is the right moment to make the most out of the rising trend and to open a long position.
- Easy to identify in a price chart.
- Provides a clear indication of potential trend reversals.
- Works well on multiple time frames and across different markets.
- It may generate false signals during periods of market consolidation.
- Not as effective when used in isolation, best used alongside other indicators.
|Bullish Engulfing||Indicates a potential trend reversal from bearish to bullish.|
|Bearish Engulfing||Signifies a potential trend reversal from bullish to bearish.|
How to use the bullish engulfing candle pattern?
Using the above we have 15 minutes Gold chart with Japanese candlesticks. You can clearly see that on the real market candlestick pattern is not always perfect, but there are still plenty of visible correct patterns.
You can see number one we have a bullish engulfing pattern where the first candle’s lowest price is lower than the opening price of a second candle. But it is still transparent that the second candle body fully engulfs the bearish candle body.
In all three examples marked on the chart, you can also notice that the opening prices of green candles are very close to closing prices of red candles. It is just because gold is a very liquid market and on the intraday scale, you will not see many gaps between previous Close and current Open.
To participate in a movement after bullish engulfing candlestick pattern appears you should take immediate action and open a long position.
If you are using the 15-minute chart you can try to open the position from lower time frame chart (e.g. 5 minutes).
It is a good idea to watch historical charts for different instruments on different time frames in order to train your eyes in identifying candlestick patterns. Then, of course, it will be a smart move to open a practice account and learn how to trade them. Do not hesitate to share your experiences with others. You will find the comment section below.
Best of luck!
- Q: What is a Bullish Engulfing Pattern?
- A: It’s a candlestick pattern that signals a potential reversal from a downtrend to an uptrend.
- Q: How is a Bullish Engulfing Pattern formed?
- A: It is formed by two candles, where the second bullish candle engulfs the first bearish candle.
- Q: Is the Bullish Engulfing Pattern a reliable signal?
- A: While it’s a strong signal, it should be used with other technical analysis tools for more accurate predictions.
- Q: Can I use the Bullish Engulfing Pattern in all time frames?
- A: Yes, this pattern can be spotted in multiple time frames, including intraday and longer-term charts.
- Q: Can the Bullish Engulfing Pattern appear in any market?
- A: Yes, it can appear in any market where price action is charted, such as stocks, forex, or commodities.
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