Bullish Engulfing

The chart above shows the 50% retracement level, which was found by dragging the Fibonacci tool from the engulfing bar’s low to the bar’s high. You certainly could have done that and still maintained a favorable risk to reward ratio. However, I like to place my stops in positions where, if the market travels there, it’s going to make me a bit uncomfortable. Needless to say, once the trade has been initiated, you will have to wait until the target has been hit or the stoploss has been breached. Derivatives are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how Derivatives work and whether you can afford to take the high risk of losing your money.

This pattern can occur at the end of a downtrend, or it can occur during an uptrend. It is important to note that the bullish engulfing pattern is much more powerful when it occurs at the end of a downtrend. A bullish engulfing pattern is the opposite of a bearish engulfing pattern, which implies that prices will continue to decline in the future. There is a two-candle design, and the first candle in the pattern is an up candle. The second candle is a larger down candle, and it has a real body that completely encapsulates the already mentioned candle. When bearish engulfing candles form after an extended uptrend, it can be a sign that the trend is reversing and that a downward move is likely to follow.

Bullish Engulfing Candle

Then, a bullish inverted hammer candlestick appears, suggesting a possible reversal. Finally, we see the big green candle that engulfs the previous red candle. Altogether, it’s a strong signal that the price might start going up. Yes, the bullish engulfing pattern can be used across various financial markets, including stocks, forex, and cryptocurrencies. As a technical analysis tool, it helps traders identify potential trend reversals or continuations regardless of the specific asset being traded.

They are popular candlestick patterns because they are easy to spot and trade. 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. On the four-hour EURUSD chart, we can see that the price has been in a downtrend. However, at the trend low, there are several bullish reversal signals.

Things You Didn’t Know About Successful Forex Traders in 2023

You can identify a bullish engulfing pattern by looking for a small bearish black candlestick followed by a large bullish white candlestick, which extends beyond the body of the former. The bearish candlestick pattern follows the same line of thought, the only difference is that it is a bearish reversal pattern that occurs at the top of an uptrend. The first candle is a bullish candle that signals the continuation of the uptrend, before the appearance of the powerful bearish candle that completely shuts down the prior candle. When you’re confident that the bullish engulfing pattern is a signal to buy, enter the trade with a stop-loss and target profit. A stop loss should be set beyond the support level, below the shadow of the engulfing candle.

So, when this pattern occurs on the higher timeframe (like Weekly) and leans against an area of value (like Support), that’s a signal the market is likely to reverse higher. Ideally, the closing price (top of the body) should also be higher than the highest point of the wick of the prior candle. This scenario gives further significance to the second candle and shows that the bulls have control over the price action now. From beginners to experts, all traders need to know a wide range of technical terms.

Bullish Engulfing: Three Trading Tidbits

Then, you want to identify the area of value so you know where potential buying/selling pressure could step in. The first thing you want to do is identify the current market structure. Because the truth is, a Bullish Engulfing Pattern is usually a retracement in a downtrend.

This presents a wonderful chance to increase one’s financial standing. Always be on the lookout for this pattern, and when you do spot it, make sure you capitalize on it. Our research will arm you with everything that you need to know to make the most of your financial trading opportunities. Level up your trading activity — discover the INFINOX experience today. Our Intel arm will arm you with everything you need to know about the financial markets.

How to Read Candlestick Charts?

Besides illustrating this point, I also want to draw your attention to chart analysis methodology. Notice in this particular chart, we did not just look at what was happening on P1 or P2. Still, we went beyond that and actually combined two different patterns to develop a comprehensive market view. While the engulfing candle is often found at the end of a trend, it can also appear within a strong trend, pointing to continued movement in the same direction.

A bullish engulfing bar typically forms after an extended move down. It signals exhaustion in the market where sellers begin to book profits and buyers begin to take an interest, thus pushing prices higher. In order to ensure engulfing candle strategy a definite reversal in trends, some traders wait for a day before they decide to switch to a long position. The traders miss out on one day’s profits in exchange for the guarantee that the market trend has indeed changed.

What is a bullish engulfing pattern?

When you see a bullish engulfing candle, it means that the bulls have taken control of the bears. The next step is to find out where the security is headed and trade accordingly. We hope this article has helped you learn more about bullish engulfing candles and their importance in trading. The bullish engulfing candle “engulfs” or “consumes” the prior small bearish candle.

Because of this, it is essential for traders to be aware of this signal and understand how to interpret it when it appears appropriately. Our educational suite is an essential toolkit to getting started with your trading journey. Unlock trading opportunities in more than 900 financial markets with INFINOX. You can also spot reversals through the use of trading indicators.