Bullish Engulfing: A strong Bullish reversal signal to enter the market

The art of trading starts with the ability to read candlestick patterns. You can communicate with the market with the help of candlesticks.

Still not aware of basics of candlestick CLICK HERE




You have seen my previous articles about the formation of a particular type of candlesticks. Each type has its own significance.

Also, read the different types of candlestick 

Doji candlestick pattern




Spinning Top candlestick pattern

But the candlestick features does not end up here.

Yes, even candlestick show some definite patterns that can help us to analyze and predict the market behavior. One of which is bullish engulfing candlestick pattern which I am going to share with you all here.

Bullish Engulfing Candlestick is a 2 candlestick pattern and as the name suggests, engulfing nature among the candlestick can be observed

 

Physical appearance bullish engulfing candlestick pattern

It is 2 candlestick pattern with one candle engulfing the other. The first candle is bearish which is engulfed by a bullish candle formed very next to the bearish candle.

The more the engulfing the better the signal.

Its interpretation has significance when formed after a downtrend. It is a bullish trend reversal signal and helpful when found, when the trend is trying to consolidate.

 

And then a bullish engulfing assures that the market has consolidated that is found its bottom and is going to change its direction.

 

A typical bullish engulfing candlestick pattern looks like as shown in the image below.

 

bullish engulfing
Source: Economic Times

Summing up the points for identification

  1. 2 candlestick pattern
  2. First candle bearish and second candle bullish
  3. Bullish candle engulfing the bearish candle should be complete
  4. The better the engulfing the better the signal ( Bigger bullish candle)
  5. Found after a downtrend.

How to trade with Bullish Engulfing Candlestick

The bullish engulfing as previously mentioned is helpful when found, after a downtrend where the market is trying to find a bottom. As the consolidation is near and bullish engulfing forms, all you need to do is prepare yourself to enter the market.

Make sure you analyze and confirm with whatever strategy or indicators you are using.

As the bottom is found the trend is going to change and head in the upward direction.

You can find this in below example.

 

bullish engulfing example__1
Source: Economic Times



bullish engulfing example__2

Source: Economic Times

Source: Economic Times

Use this candlestick pattern with MACD




Key elements to remember

  1. Enter market if identified only after downtrend
  2. Identify the complete engulfing with bullish candle
  3. Make confirmation before you enter.
  4. The trend may not reverse sudden, wait for proper consolidation and confirmation.

Bottom line

The better the confirmation the better the result. Yes, bullish engulfing candlestick is very helpful when used along with oscillators like stochastic or RSI. This will help you to identify trend efficiently and make a secure entry in the market. All you need to remember is the amount of risk you would take should not risk all your principal amount.

 

You can find other technical indicators HERE

Post Author: Sushant Putatunda

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