A bullish engulfing pattern is a two candle pattern. It is a reversal pattern and only occurs in down trends. It is mainly found at the end of down trends but can also be found at support levels. In the first candle, the price will push lower in the down trend. The following candle will ideally have a lower low than the prior day but will close higher than the prior day, therefore “engulfing” the prior day’s candle. The psychology behind this formation is that the buyers have taken control by rejecting the lower price. The key to this pattern being a reversal pattern is a close above the candle pattern formation. More emphasis can be given to the pattern when the second candle has an increase of volume. Additional significance can be added when this pattern occurs when a stock reaches a new low or if a stock is at a support level. We will work to provide as many examples as we can to help you identify this pattern.
