What is a Bullish Engulfing pattern and how does it work?:
Bullish Engulfing candlestick pattern is kind of double candlestick pattern & sign of bullish reversal.
- Above mentioned image of bullish engulfing, first candle should be red. ( bearish close )
- Second candle should be green (bullish close) & it covers red candle completely. ( consider body only )
- The body of first candle (red) should be covered from body of second candle (green).
Try to understand the logic of buyers & sellers behind bullish engulfing pattern:
- As first candle is red it clearly shows that sellers are in control.(due to heavy quantity of sellers, candle’s closing price is less than opening price.)
- Second green candle has covered the complete body of first red candle, clear meaning of this event is- buyers are in control.
- Bullish engulfing tells you the buyers have more power as compare to sellers.
Do you know you can make good profits using bullish engulfing pattern if you know when to trade & when to sit, you need to learn how to avoid common mistakes when trading the bullish engulfing pattern:
Majority of traders look to buy once they spot bullish engulfing as they think bullish engulfing is sign of weakness & now market is going to take upward move but this is wrong practice.
Now learn what you should do:
As we know that bullish engulfing shows the positive pressure or buying pressure but it doesn’t mean that you should take buy position immediately?
I mean, you should not take a position only on behalf of the bullish engulfing. Here need to make a perfect combination of other price actions parameters and then decide to buy when your combination tells “YES”
Now probably your next question is “What is combination?”
Let me explain:
You need to analyze “MARKET TREND” first, as if you find bullish engulfing in downtrend and decide to buy, high probability to get losses because during the downtrend bullish engulfing usually a retesting within a trend
In the above chart you can see the trend is negative & bullish engulfing is not able to generate profit. if you want to make consistent results in the stock market then you need to focus on the market trends first before trading with a candlestick pattern.
Now learn how to trade with bullish engulfing pattern
Whenever you combine this pattern with other parameters of technical analysis / price action you will get good result with it. Let see some examples.
- Combine bullish engulfing with support line / support zone & swing low. (location is important)
- Combine bullish engulfing with ascending trend line.
Combine bullish engulfing with resistance line / resistance zone & swing high. ( location is important )
Combine bullish engulfing with descending trend line.
- Bullish Engulfing is a reversal pattern that shows you buyers are more powerful than sellers.
- Do not trade with bullish engulfing in sideways market.
- Do not trade with bullish engulfing if market is in strong down trend.
- You can combine bullish engulfing with higher lows & support line / zone for better result.
- You can combine bullish engulfing with ascending trend line.