Ready to make the most of the Bullish Engulfing Pattern? Understand its nuances, find it in the right context, and use effective strategies to trade it on eToro. Let’s dive in!
What Is the Bullish Engulfing Pattern?
Table of content
- What Is the Bullish Engulfing Pattern?
- Trading the Bullish Engulfing Pattern on eToro: Strategies and Tips
- Look for the Pattern at the End of a Downtrend
- Use Support and Resistance Lines, Channels, and Trend Lines
- Plan Your Entry and Exit Points
- Pros and Cons of Trading the Bullish Engulfing Pattern
- Trade the Bullish Engulfing Pattern with Confidence
- Trading Technical Analysis: • Learn more📝
- Trading Basics:
- Candlestick Patterns:
- Contrarian Trading and Pattern Recognition:
- Trading Patterns and Strategies:
- Market Sentiment and Volatility:
- Technical Analysis:
- Trading Patterns:
- Trading Features & Strategies:
- Indicators & Analysis:
- Market Conditions & Trading:
- Disclaimer And General Risk Warning applicable and relevant to all platforms listed
- Author & Expert Trader - Financial Analyst:
A Bullish Engulfing Pattern is a two-candle reversal pattern found in candlestick charts. The first candle is bearish, followed by a bullish second candle that engulfs the body of the first candle. It signals a potential price reversal and the start of an uptrend, especially when observed at the end of a downtrend.
As its name suggests, the second candle should be bullish and should totally “engulf” or overwhelm the proportions of the first (bearish) candle.
In the illustration above, the second candle overwhelms the body along with the wicks of the first candle. It is quite easy to spot in a chart because of the overwhelming difference between the two candles. It is important to note that the wicks of the first candle should not stretch more than the wicks of the second candle. Furthermore, the body of the first candle should be smaller than the body of the second candle.
The bullish engulfing pattern forms on any trading range and can have multiple formations. As mentioned earlier, while it can show up on any trend, we’ll provide more consideration on the formation from a bearish trend since it provides a more convenient and consistent result.
The image below shows multiple formations of the bullish engulfing pattern on two upward trends and a sideways trend. as shown on the image, as the pattern formed at the end of an upward trend, the expected result was bearish – or the assumed price increase became a price drop. The same happened with the pattern formation at a sideways trend in the image. The price may have risen for a few bars however went back down and continued with a sideways movement. These are common misinterpretations of the bullish engulfing pattern, and it is essential to avoid these to lower the risks of losses.
Trading the Bullish Engulfing Pattern on eToro: Strategies and Tips
When trading the Bullish Engulfing Pattern on eToro, use the following strategies to maximize your chances of success:
Look for the Pattern at the End of a Downtrend
Identify a pattern that occurs after at least 7 bars or candles in a downtrend. This context makes the pattern more reliable and minimizes false signals.
In this first example with AMZN, the pattern has multiple occurrences. There are more than two bullish engulfing patterns on this chart however we’ll just be focusing on those that are located below the downtrend, and those that form at a trend line – in this case, at a line of support.
The first pattern occurs at the end of a downtrend and after a range of 10 bars. As an ideal entry, a long trade can be made at the closing price of the second candle. An ideal exit point for this case would be identified by drawing a line of resistance using previous price action. In this case, the exit point would be around the resistance line. Notice how the price hesitates to break the resistance line, which means the price is about to drop – this is where it is safe to make exits since a pullback is about to occur.
The second occurrence of the pattern is still at the end of the downtrend. Also, by using a line of support, the validity of the pattern is further enhanced. The ideal entry point would be the same as the previous case – at the close of the second candle. Also, the ideal exit point would be somewhere close to the resistance line. This case however shows the occurrence of a breakout. This means the price moved beyond the expected bounce or pullback point. If this occurs, it would be recommended to hold positions until a considerable bearish pattern occurs. For this case, the ideal exit point would be at the occurrence of the three black crows which is a sure sign of reversal (as shown by the red arrow in the image).
Another example is for the stock NFLX which this time makes use of a channel to identify significant points in the chart. The same basic condition applies for this example where the bullish engulfing pattern occurs at the end of a downtrend. The validity of the pattern is further confirmed as the price touches the base of the channel (as shown by the blue arrow).
The ideal exit point, in this case, would be identified by drawing a line of resistance using historical price movement or historical resistance. The safe exit point in this regard should be at the upper channel however a breakout occurred which presented a further price increase.
Use Support and Resistance Lines, Channels, and Trend Lines
Confirm the pattern’s validity by locating it along a trend line, support line, resistance line, or channel. These lines can serve as bounce points where prices may start to rise.
Plan Your Entry and Exit Points
Enter a long trade at the closing price of the second candle. Exit the trade near the resistance line or when you spot a significant bearish pattern. If a breakout occurs, hold your position until a bearish pattern appears.
Pros and Cons of Trading the Bullish Engulfing Pattern
- Easy to identify in charts
- Signals potential price reversals
- Reliable when used with proper context and strategies
- Prone to false signals in upward or sideways trends
- Requires knowledge of support and resistance lines, channels, and trend lines
- Not foolproof; always carries some risk
Trade the Bullish Engulfing Pattern with Confidence
The bullish engulfing pattern presents an opportunity to go long on a particular trade. While it is easy to find in any chart at any given range, it should always follow certain criteria to make it valid. These criteria include the formation at the end of a downtrend, a second candle that overwhelms the first candle, a bearish first candle, and a bullish second candle, and the pattern should occur after at least 7 bars or candles. When used with indicators such as channels, line of support and resistance, the validity of the pattern is further improved or enhanced.
Trading Technical Analysis: • Learn more📝
Contrarian Trading and Pattern Recognition:
Trading Patterns and Strategies:
Market Sentiment and Volatility:
- Bearish Engulfing Pattern
- Bullish Engulfing Candle Stick Pattern
- Morning Star and Evening Star
- Morning Star Pattern
- Railway Tracks Candlestick Pattern
- Shooting Star Candlestick Pattern
- How to Use Triangle Pattern
- How to Trade Three White Soldiers Candlestick Pattern
- Rainbow Pattern
- Understanding Flag Patterns
- How to Trade Bullish Engulfing Pattern
Trading Features & Strategies:
Indicators & Analysis:
Disclaimer And General Risk Warning applicable and relevant to all platforms listed
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