The strategy implies opening short positions after a bearish reversal pattern appears on a strong resistance level. To trade the Bullish Engulfing pattern, it’s important to identify the support and resistance levels. It can be done by looking at previous price action and determining where buying and selling pressure has been strong. A Bullish Engulfing Candle Pattern is a two candlestick pattern used in technical analysis that can indicate a trend reversal. It’s made up of two candlesticks, where the second candle completely engulfs the first one, and the second candle is bullish.

Mark the OHLC for both candles and check whether the opening price of the second candle is compared to the closing of the first. Our aim is to make our content provide you with a positive ROI from the get-go, without handing over any money for another overpriced course ever again. We are sharing premium-grade trading knowledge to help you unlock your trading potential for free. To identify an engulfing pattern you have to make sure that several things match up. Such as breaking news – you always see an engulfing pattern when the NFP is announced, it doesn’t mean you should trade it. Normally, the larger the engulfing bar, the strong the conviction of a signal.

Understanding Bullish Engulfing Candlesticks

Whereas a bearish engulfing pattern has a staggering 79% chance of generating a bearish reversal. However, Tom Bulkowski states that his findings are that a bullish engulfing pattern has a 63% chance of generating a bullish reversal. The chart example above shows three instances where a bearish engulfing forex pattern (marked by the yellow ovals) formed engulfing candle during a downtrend. In this article, we will explore a very popular candlestick pattern – the engulfing forex pattern – what it means when you see it on your chart, and how to trade it. Over a century before the West created the bar and point-and-figure charts, candlestick charts were invented by a Japanese man named Munehisa Honma in the 1700s.

Well, be it any pattern one should always wait for the price confirmation by the following candle and volumes. If the chart fails to do so then one may fall into a market trap by a false signal. This Japanese candlestick pattern should certainly be in your toolbox of trades because not only is it a strong signal, but it gives you a good idea of current market conditions. A bearish engulfing pattern is when the pattern forms towards the end of an uptrend. If an engulfing pattern emerges at the end of a trend, this becomes an engulfing bar reversal candlestick pattern.

Example of a bearish engulfing pattern

Have a look at DLF’s chart below; the bullish engulfing pattern is encircled. If you found this guide of engulfing patterns useful, share it with other traders on social media. The above shows you a good reason why targeting these support and resistance levels, as they are able to comfortable predict where price may react with them. But first, with all candlestick patterns, they always tell you what is happening in the current market. Or when an engulfing bar rallies up to a resistance level, you should be careful to trade as it has rallied to an area where previous price action was unsuccessful for going higher.

The Bearish Engulfing Candlestick Pattern is considered to be a bearish reversal pattern, usually occurring at the top of an uptrend. Here, just the opposite happens as compared to the Bullish Engulfing pattern. The first candle must be a bullish or green candle and the second a bearish or red candle. The context of where the engulfing bearish candle appears is crucial as its meaning is more precise at the end of an uptrend than inside an existing trading range. RISK DISCLOSURETrading forex on margin carries a high level of risk and may not be suitable for all investors.

2 – The Bullish Engulfing Pattern

All elements are in place, and the bullish engulfing formation is formed. Investors recognize this pattern and use this opportunity to capitalize on the imminent change in the trend direction. The price action then pushes higher to record two swing highs, and ends up in ultimately trading at higher levels.

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. 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.

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In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts. Learn more about technical analysis indicators, concepts, and strategies including Moving Averages, Candlestick basics, Gaps (windows), MACD, and many others. But the key is to use these other price action patterns to find trading opportunities on a daily basis which you can find more of on our website. Furthermore, you will notice that the price broke the small downtrend and its previous higher high, which suggests a strong move.