Physical Description of Bullish Engulfing:

This Japanese Candlestick Pattern can only form after a downtrend. This is a two candle pattern that initiates with a black candle and completes with a second, white candle, that completely engulfs the previous days’ black body (does not have to engulf the previous days’ upper or lower shadows). This is a bottom reversal pattern indicating a potential change in the preceding trend.

Bullish Engulfing Pattern Criteria:

• 2 Candle Pattern

• Appears only in the context of a downtrend

• 1st Candle is black

• 2nd Candle has the following characteristics:
• White
• Opens below the 1st candle real body
• Closes above the 1st candle real body

Bullish Engulfing Market Psychology:

These types of Candlestick Patterns are some of the strongest candlestick formations at indicating a potential price reversal in the current stock price trend. In order for this candlestick pattern to setup, there has to be current downtrend in place.

This downtrend indicates that the sellers have been in control of the stock price and overwhelming buyers as they continue to outweigh the supply/demand equation with excess supply.

The 1st candle in this pattern demonstrates continued strength by the sellers with the presence of a black candle. The 2nd candle opens lower than the previous days’ close showing that the sellers are in control and are continuing to move price down.

However, the 2nd candle demonstrates that before the trading day concluded buyers came into the market and not only took control from the sellers and move the price up, but actually took the price higher than the previous days’ opening price. This is where the 2nd candle is said to have “engulfed” the previous days’ candle and where the name for this candlestick pattern comes from.

The bearish opposite of this candle formation is called the Bearish Engulfing Candlestick Pattern.

Bullish Engulfing Pattern Trading Implications:

When the 2nd candle “engulfs” the 1st, this displays that the sellers have been overtaken through the course of the trading day. The trend has been reversed when the buyers overcome the sellers in the face of a previous downtrend. This reversal of power should help any investor or trader to make decisions about putting on or taking off a position.

Factors that Increase The Strength Of a Bullish Engulfing Pattern:

• High volume on the day of the second candle (indicates conviction)

• The 2nd days’ candle engulfs both the 1st days’ body and shadows

• The larger the gap down opening on the second day the greater probability of a reversal

• 1st days’ candle has a small real body or is a Doji