Bullish Engulfing is a candlestick pattern that works around 65% of the time. The Bullish Engulfing pattern got its name because the extended green candle completely engulfs the previous bearish candle. This shows that the buyers are more optimistic than the sellers and they have been able to exhaust the bears in the market.
This is how to spot a Bullish Engulfing pattern on a candlestick chart:
1) Like in all the patterns we are going to discuss, the long-term trend (1-year trend) should be in an uptrend. There is very little chance to succeed if the long-term trend is against your favor. Remember, it is difficult to swim against the tide. Our job as technical chart readers is to wait for the right time when the tide itself is going where we want to go.
2) The intermediate-term trend (3 months trend) should also be preferably bullish.
3) There should be a minor correction or a pullback. Remember, as a trend follower, a minor pullback after a bullish upswing is the best time to enter.
4) First candle is bearish red.
5) Second candle is bullish extended whose real body engulfs the first candle’s real body. You may ignore the shadows, or the wicks.
6) It is a better signal if the first candle is small and the second candle is comparatively long.
7) The signal is also strong if the bullish candle engulfs more than one previous candles.
8) The signal is further strengthened if the volume is comparatively higher on the engulfing day. This means that more number of bulls participated to bring the bullish market movement. Confused about all the talk on bulls and bears? This article will help.