Candlesticks

BULLISH ENGULFING PATTERNS

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Bullish engulfing patterns are two candlestick patterns found on stock charts. The bullish engulfing pattern is considered to be a reversal pattern. It appears at the end of a trend.

Candlesticks by themselves tell a story. Group them together and you get a bigger story. They begin to form patterns whether it’s a 2 candlestick pattern, 3 candlestick pattern or much larger patterns.

Buyers and sellers are in a constant battle for control. This is where everything that makes up a chart comes from. Furthermore, using those patterns together with indicators is like a a general mapping about a battle plan.

Of course it may not always go as planned but you get the warning signs along the way. Hence the importance of candlesticks and knowing what they mean.

BULLISH ENGULFING PATTERNS

Bullish engulfing patterns are formed when a small bearish candlestick is followed by a large bullish candlestick that completely engulfs the previous day’s candle. Hence where the name of the pattern comes from.

The wicks of the bearish candle are usually short so that the bullish candlestick can cover the first candle. There wasn’t a lot of price movement that day.

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

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

This is a trigger to buyers who didn’t get in on it at first. They come in to drive price even higher. If the candle that forms after the bullish engulfing pattern forms, that’s confirmation that an uptrend is now forming.

AIG was in a downtrend for quite awhile when the bullish engulfing pattern formed. The chart was comprised of bearish candlesticks along with bear flag patterns before the reversal pattern formed. Price moved up for a couple days, then fell before moving back up.

BULLISH ENGULFING PATTERNS – REVERSALS

Where bullish engulfing patterns form in regards to the trend it’s in is one of the most important factors for the reversal. When this pattern forms at the end of a downtrend, the reversal is much more powerful.

It’s 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 be forming lower lows.

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

As always it’s important to remember that patterns break down all the time. You need to look at other indicators to make sure the trend reversal is in place and solid and not just the bears trying to trapans squeeze the bulls.

BULLISH ENGULFING PATTERNS – TECHNICAL ANALYSIS

Confirmation of any pattern is pretty important. A reversal pattern like the bullish engulfing pattern needs confirmation of a reversal. The pattern itself isn’t confirmation enough.

Moving average lines are usually a pretty important aspect of trading. They give confirmation, buy and sell signals as well as acting as support and resistance.

Pairing those with indecision candles such as doji candlesticks can help you anticipate a move. Using RSI and MACD along with moving average lines are a great resource.

Bullish engulfing patterns tend to happen in downtrends. Is the RSI oversold? Does it need to correct? How far from moving average lines are the candlesticks?

These are all important things to consider when you’re thinking of placing a trade. They’re tools other traders use as well as pay attention to.

Bullish Engulfing Patterns
Netflix had two bullish engulfing patterns form that had 2 different reactions. When the first bullish enfolding candle formed, NFLX wasn’t in a huge downtrend and the moving average lines were bullish. So price moved up riding those lines. Price was in a downtrend when the second bullish engulfing pattern formed. But instead of reversing price continued to fall. The moving average lines were completely bearish when the pattern formed. So a reversal didn’t happen. Hence the importance of paying attention to what the indicators are telling you.

BULLISH ENGULFING PATTERNS – SMALL PATTERNS INSIDE BIG ONES

The two candlestick patterns like bullish engulfing patterns form inside larger patterns. This could also be why not every reversal pattern does the reversing.

It’s so important to be able to see larger patterns like symmetrical triangle patterns, bear pennants or bull pennants. Where the smaller patterns form in regards to the larger patterns can be the difference of the move.

Traders find and trade patterns of all sizes. It’s important to be able to see them whether big or small.

symmetrical triangle pattern

 

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