Understanding Candlesticks_8. Bullish and Bearish Engulfing Patterns

Lesson 8: Bullish and Bearish Engulfing Patterns One of the two candlestick bullish reversal signals is the bullish engulfing pattern. The first of the candlesticks is a bearish one. It doesn’t need to have a large real body but the signal is stronger if it has. The second is a long bullish candle that completely engulfs the first candlestick’s real body. Note that both candlesticks can have small shadows as well. The important thing to look at is the real body. This is a very strong reversal signal because not only does the second candlestick show the change in the market players’ psychology, but also it has managed to close above the previous candlestick’s opening price. The signal gets stronger if the second candle can wrap around more than one of the previous candles. As this is a bullish reversal signal, we will only look for it in a down-trend. On the other side of the trend, we can see the opposite signal which is called the bearish engulfing pattern. The first candle in the signal is a bullish candlestick and the other one is a long bearish one that completely wraps around the first candle. Remember: the bullish engulfing signal is only valid in a down-trend - and the bearish engulfing pattern only in an up-trend.