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A powerful two-candle reversal pattern where a large bullish candle completely engulfs the prior bearish candle, signaling a decisive shift in control from sellers to buyers.
The Bullish Engulfing is a two-candle reversal pattern that forms at the bottom of a downtrend. It consists of a small bearish candle followed by a larger bullish candle whose body completely "engulfs" or covers the body of the first candle.
The key requirement is that the second candle's body must open below the first candle's close and close above the first candle's open - completely encompassing the prior candle's real body. This represents a decisive shift where buyers overwhelm the sellers.
The Bullish Engulfing tells a story of complete reversal of power. On the first day, sellers maintain control - the market closes lower, continuing the downtrend. Bears feel confident; the trend appears intact.
Then everything changes. The second day opens even lower (showing initial bearish continuation), but buyers flood in. They push price up through the entire previous day's range and beyond, closing above where sellers started the day before.
This is not subtle. The large bullish candle *physically swallows* the bearish candle - a visual representation of buyers consuming and overwhelming seller conviction. It's the market's way of saying "the bears are done here."
Conservative: Enter on a break above the engulfing candle's high, confirmed by the next bullish candle.
Aggressive: Enter at the close of the engulfing candle if volume and context are strong.
Place stop below the low of the engulfing pattern (the lower shadow of either candle). This is where the pattern is invalidated.
T1: Previous swing high or nearest resistance level. T2: Measured move equal to the engulfing candle's range projected upward. T3: Use trailing stop on 50% position for extended moves.
Minimum 1:2 R:R required. The pattern's reliability increases when R:R is favorable and volume supports.
A Bullish Engulfing is most powerful when it appears in the right context. The same pattern can be highly reliable or just noise depending on where it forms.
Size matters. The engulfing candle should be at least 1.5x the size of the previous candle's body. Weak engulfing patterns fail more often.
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