Bullish Engulfing Pattern: Definition, Formation, & Examples

Let’s continue with my analysis of why I believe this company still has strong upside potential. Before we get into more detail, to my understanding, ETD still has a sound business model, great products, and no intrinsic failures. TAP bottomed in Sept 2020 and began to move higher till 7 Jun2021, after which it made no further progress and pretty much churned sideways in a wide range for the next 11 months. Finally, on 2nd May this year, it began to propel strongly above the neckline due to positive earnings surprise.

  • The bullish candle towers over the bearish candle, hence the word “engulfing”.
  • This pattern should be used in conjunction with other technical indicators to confirm the reversal.
  • It should be emphasized that engulfing gives more accurate signals on higher timeframes from H4 and higher.

Finally, comprehending and efficiently using the bullish engulfing pattern necessitates information, practise, and strategic acumen. Market volatility, volume and system availability may delay account access and trade executions. Past performance of a security or strategy is no guarantee of future results or investing success. Trading stocks, options, futures and forex involves speculation, and the risk of loss can be substantial. Clients must consider all relevant risk factors, including their own personal financial situation, before trading. Trading foreign exchange on margin carries a high level of risk, as well as its own unique risk factors.

Weekly price action has bounced off the bottom of the cloud, which coincides with the touch made in December 2022 and another touch made in May 2023. If you are risk-averse, you can wait for confirmation for a few more days to confirm the increase. Supporting documentation for any claims, comparison, statistics, or other technical data will be supplied upon request.

How to Identify a Bullish Engulfing Pattern

These patterns often occur at market turning points and can be used in conjunction with other technical indicators to confirm a trade setup. A close above the high of the bullish candlestick confirms the pattern. The backtest has been carried out in a period when the market was overall in a very bearish trend. The strategy may perform better when the market is in a overall bullish trend. It is a pattern that signals a potential reversal from a downtrend to an uptrend and has proved to be a game-changer for many traders.

The strategy has 217 trades but the average gain is pretty low at 0.22%. This might turn into a good trading strategy if we add some more parameter, but we believe there are better options out there so we skip it. The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView.

  • Bear in mind that the Bullish Engulfing Candle can only be valid if it forms towards the end of a downtrend.
  • First, this pattern is typically found at the bottom of a downtrend or near support levels.
  • The range started back in May 2021, and appeared to be broken to the upside in August 2023.

When a bullish engulfing is formed, it tells us that the bulls finally won the fight with the bears. As with any trading strategy, it is important to use caution and employ sound risk management when trading reversals. The Bullish Engulfing pattern is a classic technical analysis signal that can indicate the start of a sharp rally. In order to trade it effectively, there are a few key things you need to look for. The ranging price action needs to be followed by the engulfing pattern.

– Trading Engulfing Patterns using trendlines strategy

The appearance of a bearish engulfing candle is preceded by a long upward trend. At the moment of formation of the first bullish candle, trading volumes decrease. The bullish engulfing candle pattern can be observed in action in the GBP/USD daily chart presented below. Subsequent candles validated the signal as they closed above the high of the bullish candle.

However, it’s important to remember that successful trading goes beyond the pattern. Risk management is critical in protecting your capital, and seeking additional confirmation from supporting factors can strengthen your trading decisions. Moreover, always consider the overall market direction, sentiment, and other relevant factors bullish engulfing strategy to filter out potential false signals and increase your trading success. The bullish engulfing pattern does not necessarily give you a price target. After you identify a potential candle, you need to choose the risk-reward according to your set-up. The bullish engulfing pattern is visible much more clearly on higher timeframes.

Don’t make this common mistake when trading the Bullish Engulfing Pattern…

The stock price is below the Ichimoku cloud, and even well below its 200-day moving average. But there are a few technical points that may be indicative of a trend reversal. This is due to the fact that the market can behave unpredictably due to various factors. In addition to technical analysis of the chart, fundamental analysis must also be used when trading. This strategy involves opening positions on a trend reversal after the pattern formation. Opening/closing a trade is carried out according to the rules of risk and money management.

Mistakes to avoid while trading bullish engulfing

The engulfing pattern is of Japanese origin, where candlestick technical analysis appeared in the 18th century on the rice exchange. The pattern consists of two outside bars on a candlestick chart, in which the second candle engulfs the first. However, keep in mind that on crypto markets, you do not find open and close trading periods. So the second candle just needs to surpass and engulf the first candle.

Traders typically use 1 day or even 1-week charts to confirm this pattern and the subsequent trading signal. • The SPX is doing a very powerful reaction above a critical support level;
• First, as seen in the daily chart, it hit the 3,949 support, and it is doing a powerful reaction. As with any other technical analysis patterns, the engulfing pattern provides unique warning signals. Another example of a bullish engulfing candle can be seen below in the XAUUSD daily chart.

What is your current financial priority?

After the formation of the gold pattern, quotes reversed upward and grew by more than 43% in 5 months. On timeframes up to H1, the pattern is formed mainly during price corrections. Often, on smaller timeframes, this pattern can be found in the middle of a downtrend or at a local top.

Why Less Trading Means More Profit For You (Trading Is Hazardous For Your Wealth)

This pattern should be used in conjunction with other technical indicators to confirm the reversal. Traders interpret the bullish engulfing candlestick pattern as a trading signal to go long or purchase more, anticipating that the price of the investment will continue to rise. When these conditions are met, traders will look to enter long positions. When it comes to technical analysis with candlesticks, one of the most popular patterns to look for is the bullish engulfing pattern. This two-candlestick pattern occurs when a small bearish candlestick is followed by a much larger bullish candlestick, which completely engulfs the small bearish candlestick. Bullish engulfing patterns are more likely to signal reversals when they are preceded by four or more black candlesticks.

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