The Bullish Engulfing Pattern
The Bullish Engulfing pattern on a candlestick chart indicates increased buying power of market participants.
Charting patterns are attempts by market technicians to find order out of the chaos of price movements. They are a sequence of chart behaviours that may indicate a certain market condition.
Three Market conditions
Bullish: increased sentiment by participants to buy the asset.
Bearish: sentiment leans towards selling of the asset.
Undecided: this is where there is no strength either way; to buyers or sellers and the price flattens.
Three categories of patterns
There are three categories of chart patterns, indicating one of the three conditions mentioned above. The Bullish Engulfing pattern indicates increased buying pressure in the market.
Analysing the Pattern
- The first candle opened at one price and during the course of time decreased significantly – a Bearish move.
- The subsequent candle shows the price opening at the close of the previous candle – buyers then step in to raise the price above the open of the previous candle.
- This pattern shows that buyers are momentarily in control.
In a Nutshell
This pattern indicates that buyers are momentarily in control. Candlestick patterns must not be taken in isolation. The prevailing trend is what signals who is in control of the overall market. This must be taken into consideration before making any trading decisions. I have discussed this in more detail in a previous article looking at the limitations of candlestick charts.
As an interesting note, many patterns will usually have an opposite. The opposite of this pattern is the “Bearish Engulfing Pattern“.