Engulfing Candlestick Definition and Tactics

What is Bullish Engulfing Pattern

Bullish Engulfing Pattern
Bullish Engulfing Pattern

This is a type of candlestick pattern which requires two candlesticks and prior downtrend. The first candle is filled candle and second aka engulfing candle is hollow candle closing above close of filled candle.

Underlying Psychology of Bullish Engulfing Pattern

The first day of the pattern, bears are still in control as we have confirmed downtrend. Price opens lower next day suggesting bears are still in control, however during the session bulls makes entry and starts buying; this buying bought the prices of underlying security higher and close above the open price of previous filled candle.

How to Trade Bullish Engulfing Pattern

Decision: In case of bullish engulfing, traders should start looking for buying opportunities, buy price should be around the close price of engulfing candle after the filled candle.

Stop loss: What if the market reverses its direction after printing the bullish engulfing pattern? The lowest low of the two candle make bullish engulfing pattern will act as stop-loss in case that happens.

Main Points to Consider

  • Wait for confirmation candle after the bullish engulfing pattern has been formed.
  • Pattern with large body candles works better compared to the pattern with short body.

What is Bearish Engulfing Pattern

This requires two candlesticks and prior uptrend. The first candle is hollow candle and second aka engulfing candle is filled candle closing below open of hollow candle

Bearish Engulfing candlestick pattern
Bearish Engulfing Candlestick Pattern

Underlying Psychology of Bearish Engulfing Pattern

The first day of the pattern, bulls are still in control as we have confirmed uptrend. Price opens higher next day suggesting bulls are still in control, however during the session bears makes entry and starts selling, this selling bought the prices of underlying security lower and close below the open price of previous hollow candle.

As long as the body of first candle is engulfed by second candle, it it considered as valid engulfing pattern.

How to Trade Bearish Engulfing Pattern

Decision: In case of bearish engulfing,traders should start looking for selling opportunities, sell price should be around the close price of engulfing candle after the hollow candle.

Stop loss: What if the market reverse its direction after printing the bearish engulfing pattern? The highest high of the two candle making bearish engulfing pattern will act as stop-loss in case that happen

Main Points to Consider

  • Wait for confirmation candle after the bearish engulfing pattern has been formed.
  • Pattern with large body candles works better compared to the pattern with short body.

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