Definition: Get the highest rated stock from Americanbulls for this pattern >>>
Bullish Engulfing Pattern is a pattern characterized
by a large white real body engulfing a preceding small
black real body, which appears during a downtrend. The
white body does not necessarily engulf the shadows of
the black body but totally engulfs the body itself.
The Bullish Engulfing Pattern is an important bottom
reversal signal.
Recognition Criteria:
1. Market is characterized by downtrend.
2. Then we see a small black body.
3. Next day we see a white body that completely engulfs
the black real body of the preceding day.
Explanation:
While the market sentiment is bearish; we see some
subsided selling reflected by the short, black real
body of the first day. Next day shows bull strength
with a closing price at or above the previous day’s
open. It means that the downtrend is now losing momentum
and the bulls started to take the lead.
Important Factors:
The relative size of the bodies in the first and second
days is important. If the first day of the Bullish Engulfing
Pattern is characterized by a very small real body (it
may even be a doji or nearly a doji) but the second
day is characterized by a very long real body, this
strongly indicates that the bearish power is diminishing
and the disparity of white versus black body is indicative
of the emerging bull power.
There is higher probability of a bullish reversal if
there is heavy volume on the second real body or if
the second day of the Bullish Engulfing Pattern engulfs
more than one real body (which essentially means we
see two or more small black bodies preceding the long
white body).
The reversal of downtrend needs further confirmation
on the third day. This confirmation may be in the form
of a white candlestick, a large gap up or a higher close
on the third day.
