Bullish Engulfing Candlestick Pattern

The Bullish Engulfing Candlestick is obviously a very bullish sign. This is a two candlestick pattern, but refers to the second candlestick only. With this means is that in order to have a bullish engulfing candlestick, you need to have the second candle fulfill the requirements. In order to be a bullish engulfing candlestick, you have to have a larger range than the previous candlestick, as it shows volatility. In essence, the sellers try to push the market lower, but at the end of the candle we end up higher. This shows that the sellers have run out of steam, and that the buyers are starting to take over.

Bullish Engulfing Candlestick

Bullish Engulfing Candlestick

By showing this, you can imagine that the market participants are suddenly having a change of heart. The buyers are starting to take control, and that of course has the sellers buying back their positions and pushing the market even higher. Quite often, these candlesticks appear at major support levels, showing that the market is ready to bounce. This can either be at the end of a downtrend, or at the end of a pullback in a longer-term uptrend. Either way, this makes for a powerful trading signal once we break above the top of the range that the bullish engulfing candlestick forms.

 

In the chart below, you can see where buying on a break of the top of the bullish engulfing candlestick led to massive profits as the market completely turned around. Once the market breaks above the top of the range, all of the sellers are now losing money, and therefore will start closing their positions. By doing so, they put more upward pressure on the markets, increasing the momentum to the upside as they buy their shorts back.

Bullish engulfing trade

Bullish engulfing trade

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