Bullish engulfing pattern.
What is it?
Engulfing patterns happen when the real body of a price candle covers or engulfs the real body of one or more of the preceding candles.
The more candles that the engulfing candle covers the more powerful the following move will likely be.
There are two types. Bullish and bearish.
The bullish engulfing pattern signals a bullish rise ahead and the opposite is true for the bearish engulfing candle.
In the above chart I have circled the bullish engulfing candles which led to price rises immediately after.
How do I trade it?
Well, the bullish engulfing pattern is a precursor to a large upward move.
So, when you see an the engulfing candle taking shape you should wait for the following candle and then open your position.
Your stop should be placed at the low of the engulfing candle.
Bearish engulfing pattern.
What is it?
The bearish engulfing pattern signals a bearish price decline ahead.
In the above chart I have circled the bearish engulfing candles which led to price declines immediately after.
Again, the more candles that the engulfing candle covers the more powerful the following move will likely be.
How do I trade it?
It is the same principle as the bullish pattern,? just the flip side of the coin!
The bearish engulfing pattern is also a precursor to a large decline.
So, when you see an the engulfing candle taking shape you should wait for the following candle and then open your position.
Your stop should be placed at the high of the engulfing candle.