Bullish Engulfing Patterns

How to Trade a Bullish Engulfing Pattern

7 min read

Bullish engulfing patterns are two candlestick patterns found on stock charts. The bullish engulfing pattern is considered a reversal at the end of downtrends or near support levels. They consist of a big bullish candlestick that engulfs a smaller bearish one. Watch for the price to break above the bullish candlestick and hold to confirm bullish continuation. 

A bullish engulfing pattern consists of two candlesticks that form near support levels; the 2nd bullish candle engulfs the smaller 1st bearish candle. Typically, when the 2nd smaller candle engulfs the first, the price holds support and causes a bullish reversal.

Bullish engulfing patterns are formed when a small bearish candlestick is followed by a large bullish candlestick that completely engulfs the previous candle. This is how the pattern got its name.

The wicks of the bearish candle are usually short so that the bullish candlestick can cover the first candle, which often signals that there was not a lot of price movement that day.

As the pattern’s name implies, the bulls have taken control of the bears. This type of pattern usually occurs in a downtrend. The bulls decide not to let the price fall any further.

The second candle shows a ton of buying interest. It takes over the highs and lows of the previous day, driving the price up so that it closes at or near the high of the day.

This triggers buyers who did not get in on it at first. They come in to drive prices even higher. If the candle that forms after the BE pattern forms, that is confirmation that an uptrend is forming.

Bullish Engulfing Pattern

This is an example of a bullish engulfing pattern. It’s a two-candlestick bullish reversal. Traders enter a long position once the price breaks above the bullish candlestick and use a candle close below the bullish candlestick as a stop level.

Bullish Engulfing Technicals

Where a bullish engulfing pattern forms in regards to the pattern is one of the most important factors for the reversal. The reversal is more powerful when this pattern forms at the end of a downtrend.

It is seen as more powerful because it represents the bottom or a key support level. The lows of the candle should be the low of the downtrend. Typically, the candles preceding a bullish engulfing pattern should form lower lows.

When the next candle that forms after the bullish engulfing candle closes above, that is a significant signal that the official trend reversal is happening. It now needs higher highs.

Remember that patterns always break down; traders need to look at other indicators to ensure the trend reversal is in place and solid, not just the bears trying to trap the bulls.

COMPANY
Trade Ideas Logo TrendSpider Premium Partner Benzinga
DESCRIPTION Trade Ideas provides powerful tools like real-time market scanning, AI-driven trade signals, customizable alerts, advanced charting capabilities, and time-saving data visualization TrendSpider is the most robust all-in-one trading platform on the market today. Uncover strategies, pinpoint opportunities, analyze assets, and time trades like never before Benzinga allows traders to profit with actionable stock news, trading signals and alerts, A streaming platform with all the information you need to invest smarter today
HIGHLIGHTS

Confirmation Is Key

Confirmation of any pattern is important. A reversal pattern like the bullish engulfing pattern needs confirmation of a reversal. The pattern itself needs to be confirmed more. When trading, try to have as many other technical indicators, trend lines, or other criteria pointing in the same direction as your trade idea. A system in place helps create confidence in entering the trade; this is critical.

Moving average lines is a pretty important aspect of trading for people. They confirm the trend, can be used for buy and sell signals, and act as support and resistance.

Pairing those with indecision candles, such as doji candlesticks, can help anticipate a move.

Using RSI and MACD along with moving average lines is a great resource for traders who want to keep it simple.

Typically, BE patterns happen in downtrends, be they short, medium, or long downtrends. It is important to check RSI to see whether it is oversold or needs correcting. Fibonacci levels are also important to check; these can be areas of interest when trading, whether swing or, say, trading. How far from moving average lines are the candlesticks? Getting a game plan in place before entering is going to help. Once we get the criteria in place…it is time to execute the trade!

These are all important things to consider when thinking of placing a trade. Technical analysis can be helpful for any new or seasoned trader.

Bullish Engulfing Pattern Example

Bullish Engulfing Pattern Example

This is an example of a bullish engulfing pattern on a daily chart of $CAT. The pattern formed at the base of a falling wedge pattern. Traders would enter a long position as the price breaks above the bullish candlestick and use a candle close below as a stop. Once the price broke out of the falling wedge, it became a rising wedge pattern. You’ll also notice that there was an inverse head and shoulders at the center of the pattern.

COURSE
Day Trading Course Options Trading Course Futures Trading Course
DESCRIPTION Learn how to read penny stock charts, premarket preparation, target buy and sell zones, scan for stocks to trade, and get ready for live day trading action
Learn how to buy and sell options, assignment options, implement vertical spreads, and the most popular strategies, and prepare for live options trading How to read futures charts, margin requirements, learn the COT report, indicators, and the most popular trading strategies, and prepare for live futures trading
INCLUDED

Trading Bullish Engulfing Patterns

  • Watch for 1st bearish candlestick to form
  • Next, watch for 2nd larger candlestick to engulf 1st smaller bearish candle
  • Then, watch for 3rd candlestick to break above 2nd
  • Traders take a long position once the price breaks above the 2nd candlestick
  • Place stop below the base of the 2nd candle
  • Some traders take a short position once the price breaks below 2nd candle
  • Then place the stop above the 2nd candle
Bullish Engulfing AAPL

TrendSpider chart using the candlestick recognition feature to spot patterns that we select to be filtered out!

Screeners

Screeners or scanners can play an important part in helping find different types of setups. However, thanks to their screener, it saves so much time. TrendSpider is a pioneer with their pattern screener. This is a great way to find bullish engulfing setups and any other patterns the trader might search for.

Bullish Engulfing Patterns

Bullish engulfing pattern screener settings for Trendspider.

Frequently Asked Questions

The bullish engulfing pattern is reliable, with an overall win rate of 55%. However, it's not as reliable as some of the other reversal patterns.

The psychology behind the bullish engulfing pattern is that the buyers come in at key support levels and push the price up. The volume increasing buying pressure and creates the large bullish candle.

A bullish engulfing candle pattern can happen on any time frame. They are a reliable reversal pattern that shows the bulls are taking over control of the bears.

Related Articles

FREE ONLINE TRADING COURSES

If you’ve looked for trading education elsewhere then you’ll notice that it can be very costly.

We are opposed to charging ridiculous amounts to access experience and quality information. 

That being said, our website is a great resource for traders or investors of all levels to learn about day trading stocks, futures, and options. Swing trading too! 

On our site, you will find thousands of dollars worth of free online trading courses, tutorials, and reviews.

We put all of the tools available to traders to the test and give you first-hand experience in stock trading you won’t find elsewhere.

Our content is packed with the essential knowledge that’s needed to help you to become a successful trader.

It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career.

Invest the proper time into your Trading Education and don’t try to run before you learn to crawl. Trading stocks is not a get-rich-quick scheme. It’s not gambling either, though there are people who treat it this way. Don’t be that person! 

STOCK TRADING COURSES FOR BEGINNERS

The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms. We provide our members with courses of all different trading levels and topics.

If you’re a beginner, intermediate level, or looking for expert trading knowledge…we’ve got you covered. 

We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. Free.

Just choose the course level that you’re most interested in and get started on the right path now. Become a leader, not a follower. When you’re ready you can join our chat rooms and access our Next Level training library. No rush. We’re here to help.

Click Here to take our free courses.