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What is the Bullish Engulfing Candle Pattern?
Candlestick patterns are an excellent way for traders to look for areas of strength and weakness. In particular, identifying reversal points with candlestick patterns is a way traders can gain an edge in the market.
One of the most effective patterns for doing just that in forex trading is with the bullish engulfing pattern.
The bullish engulfing pattern is a candlestick pattern that is highlighted by a strong green candle that encompasses (engulfs) the prior red candle.
Bullish Engulfing Candle Pattern
Generally speaking, the bullish engulfing candle pattern will feature a lower open and a higher close as measured by the candlestick. However, the fact that the green candle is required to open lower than the prior red candle is not as important as the fact that the green candle closes significantly stronger and higher.
The bullish engulfing candle pattern is an indicator that the bulls are seizing back control and we could be on the verge of a reversal. This pattern generally is found at the bottom of a downtrend and marks the first point in a turnaround to more bullish price action.
The fact that the body of the green bullish engulfing candle is larger than the prior red candle indicates a number of things. Firstly, there is a change in sentiment. The price had been falling away and now something has changed. That means the buyers are now more positive and have taken control.
The second point is that there is likely also more volume coming in that has led to the outsized moved. As we know, price is ultimately moved by volume, so when we see larger moves, for the most part it is due to a larger volume. And when the larger volume is present there is a higher probability that we will see a follow-through in the direction of the move. So in this case, in the direction of the bullish engulfing pattern.
This pattern is also highly effective in reverse and is known as the bearish engulfing candle pattern and features an attempt to push higher followed by the bears seizing control and ultimately a strong red candle with a lower close.
Bullish Engulfing Candlestick Tail
A less obvious factor but one that is also important is the length of the tail or the wick. The tail is generally considered as the area between the open price and the low of the candle.
While we generally consider a bullish engulfing candle pattern to be one where the open is lower and the close is higher than the previous bar, we can also get a lot of information about the length of the tail.
When we see candles that have long wicks, they are also strong indicators of a reversal or trend. What’s going on is that the bears have been pushing the price down, but when they got to a certain price, the bulls swept in and quickly bid that price back up. So fast, in fact, there was a sharp move between the open and the low, that got rejected.
So for forex traders of the bullish engulfing candle pattern, when you see a long wick on the tail of a candle, that should give you even more confidence that the bulls are back in control and that there is a good chance of some follow-through to the upside.
Candlestick patterns are an excellent way for traders to look for areas of strength and weakness. In particular, identifying reversal points with candlestick patterns is a way traders can gain an edge in the market.
One of the most effective patterns for doing just that in forex trading is with the bullish engulfing pattern.
The bullish engulfing pattern is a candlestick pattern that is highlighted by a strong green candle that encompasses (engulfs) the prior red candle.
Bullish Engulfing Candle Pattern
Generally speaking, the bullish engulfing candle pattern will feature a lower open and a higher close as measured by the candlestick. However, the fact that the green candle is required to open lower than the prior red candle is not as important as the fact that the green candle closes significantly stronger and higher.
The bullish engulfing candle pattern is an indicator that the bulls are seizing back control and we could be on the verge of a reversal. This pattern generally is found at the bottom of a downtrend and marks the first point in a turnaround to more bullish price action.
The fact that the body of the green bullish engulfing candle is larger than the prior red candle indicates a number of things. Firstly, there is a change in sentiment. The price had been falling away and now something has changed. That means the buyers are now more positive and have taken control.
The second point is that there is likely also more volume coming in that has led to the outsized moved. As we know, price is ultimately moved by volume, so when we see larger moves, for the most part it is due to a larger volume. And when the larger volume is present there is a higher probability that we will see a follow-through in the direction of the move. So in this case, in the direction of the bullish engulfing pattern.
This pattern is also highly effective in reverse and is known as the bearish engulfing candle pattern and features an attempt to push higher followed by the bears seizing control and ultimately a strong red candle with a lower close.
Bullish Engulfing Candlestick Tail
A less obvious factor but one that is also important is the length of the tail or the wick. The tail is generally considered as the area between the open price and the low of the candle.
While we generally consider a bullish engulfing candle pattern to be one where the open is lower and the close is higher than the previous bar, we can also get a lot of information about the length of the tail.
When we see candles that have long wicks, they are also strong indicators of a reversal or trend. What’s going on is that the bears have been pushing the price down, but when they got to a certain price, the bulls swept in and quickly bid that price back up. So fast, in fact, there was a sharp move between the open and the low, that got rejected.
So for forex traders of the bullish engulfing candle pattern, when you see a long wick on the tail of a candle, that should give you even more confidence that the bulls are back in control and that there is a good chance of some follow-through to the upside.
