The basics of the bullish engulfing candle

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Forex is a complex market. There are so many things happening on your screen that leave many novice traders frustrated, which is one reason why they seek out Forex trading coach services in the first place. Here, we will discuss a component of the charts: the candles and their patterns. More specifically, the bullish engulfing candle. So what is it?

Bullish Engulfing Candle Pattern

The definition can be confusing. We can break this down into two components. For one, the bullish candlestick needs to close higher than the opening of the bearish candlestick. Then, the same bullish candlestick needs to open lower than the closing of the bearish candlestick that precedes it. It looks like this:

So, despite the rather confusing definition, it does not take more than a glance to notice bullish candlestick patterns. One candle’s body completely “engulfs” that of the previous one. If you flip the script, you would get a bearish engulfing pattern.

Types of Engulfing Candlestick

There are two types of engulfing candlestick patterns: bullish and bearish. A bullish engulfing pattern gives the strongest signal if it appears at the bottom of a downtrend and shows a surge in buying pressure. It tends to cause a trend reversal since buyers would buy the dip, therefore causing the price to jump again. What does that mean? It means that a trend reversal indicated by the bullish engulfing pattern tends to occur when and only when the market is in a downtrend. The engulfing candle indicates that people are buying in rapidly, creating an upward momentum and an imminent price surge. You can confirm this trend reversal by using other indicators, support and resistance levels, etc.

The bearish engulfing pattern is the exact opposite. It is strongest if it crops up at the peak of an uptrend and there is a surge of selling pressure. This also causes a market reversal when traders start to sell quickly, driving the price down. So, you want to keep an eye out for it during an uptrend. At a certain point, traders would start selling, which gives the momentum to drive the price down. You would make use of similar indicators and observations as that for the bullish engulfing pattern.

What is the Bullish Harami Pattern?

It might seem confusing, but the bullish Harami pattern is similar to the bearish engulfing pattern, not the bullish engulfing pattern. The difference is the size of the smaller and the relative size of the bullish and bearish candles. That means careful observation must be applied. A bullish Harami pattern occurs when the bullish candle is at least about ¼ the size of the bearish candle that precedes it.

There are other conditions that must be met. For one, this pattern needs to occur during a downtrend. Then, other indicators should show a trend reversal or that the momentum is slowing down. Next, check the size of the bullish and bearish candles. Make sure that the entirety of the bullish candle is enclosed inside the length of the last bearish candle’s body. Finally, look for confluence using indicators and support/resistance levels.