Bullish Engulfing Pattern: Definition, Example, and What It Means

Understanding the difference between bullish patterns and bearish patterns will be key to leveraging engulfing patterns to your advantage. In an up or bullish candle, the top marks the closing price, and the bottom marks the opening price. The high and low prices for the period may be indicated by thin lines that look like wicks of the candle and that extend beyond the real body.

While some traders are comfortable with that risk profile, others might feel safer going with the trend. Learn how to use a series of swing highs/lows to find the best context for trading an engulfing candlestick pattern in this simple price action strategy. One of the most dependable and often used candlestick reversal patterns is known as the bullish engulfing candle.

Engulfing Pattern Trading Strategy

According to strategy, open a buy trade when a bullish engulfing candlestick forms above the 20-period exponential moving average. So, by the confluence of moving average and candlestick pattern, a perfect buy setup formed like the image below. Bullish and bearish engulfing patterns are powerful signals that can help traders determine when to enter or exit 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. 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.

For instance, if you were to trade the 1 hour chart, you would look at support and resistance levels on the 4hr, Daily, and Weekly charts. If you were to trade the Daily chart, you would look at support and resistance levels only on the Weekly chart. When the conditions of engulfing candlestick meet, the indicator will highlight the pattern with white or black color. Before learning the working of this indicator, you should be able to identify the engulfing candlestick on the chart correctly.

The Engulfing Pattern

Naturally, it signals a potential reversal of the prevailing trend. The body-to-wick ratio of both candlesticks should be greater than 60%. An uptrend is defined by higher-swinging highs and higher-swinging lows in price. Prices move in waves, advancing, pulling back, and then advancing again. In an uptrend, the advancing waves are larger than the pullbacks lower, creating overall progress higher. During an uptrend, you should take only long positions, buying with the intention of selling later at a higher price.

• Completely deleting all the work that the sellers had to build that previous bearish candle.
• With indicators, traders don’t just guess when to buy or sell certain coins but rely on tech analysis and make trades at the best moments to maximize profits and avoid losses.
• This pattern can occur at the end of a downtrend, or it can occur during an uptrend.
• While new traders think of this as the hardest part, it’s actually quite simple.

It can be done by looking at previous price action and determining where buying and selling pressure has been strong. Notice how the body of the engulfing candle doesn’t cover the previous one. One way of  determining who has the control of a certain currency pair is to look at price action. engulfing candle Traders may look at the trend, structure, or candlestick patterns to determine who has been more aggressive. 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.

How to Find Engulfing Candlestick Patterns?

Other candlestick formations are sometimes required to confirm the pattern. If the market is indeed going to respect the key level as new support, it should do so within a 20 to 50 pip window. Any more than that and there’s a good chance this market would see a larger correction. Therefore a 140 pip stop was more than acceptable if the market is indeed going to respect old resistance as new support. As the name implies, an engulfing candle is one that completely engulfs the previous candle.

Go down to a lower timeframe and time your entry there with a bullish engulfing candle. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Room. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets. We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade.

Intra-day Bearish Engulfing Pattern

This shows that, generally, the broader market is moving in a positive direction. Once identified, you are ready to enter the market on the next confirmation candle. To open a long position, buy above the bullish engulfing pattern; to open a short position, sell below the bearish engulfing candle. An engulfing pattern is a reversal pattern which is found in all types of candlestick patterns. A bullish engulfing happens during a downtrend while a bearish one forms during an uptrend.

If you see that the red candle at the bottom of the bear market is followed by a green candle fully overlapping the red one, you probably spot this indicator. To trade bullish engulfing patterns, wait for a small bearish candle followed by a larger bullish candle that “engulfs” the previous one. Confirm the pattern with other indicators and enter a long position with a stop-loss below the low of the bearish candle. In summary, the engulfing pattern trading strategy gives you a chance to trade along with the smart money and profit from trapped retail traders.

Example #2: Intraday Engulfing Pattern

If the price action approaches a support level and at the same time a bullish Engulfing pattern appears on the chart, this creates a very strong bullish potential. When this distance is fulfilled by the price action, you can either close the whole trade, or part of it. If you decide to keep a portion of the trade open, then you should carefully monitor price action for a potential exit opportunity. This includes support/resistance breakouts and trend or channel breakouts.

• The Bullish Engulfing Pattern Scanner scans for assets that have formed a bullish engulfing pattern.
• It happened at a support level, which makes it even more significant.
• Traders can enter a long position once the pattern is confirmed, with a stop-loss order placed below the low of the red candle.