What is a bullish engulfing pattern?
Today we will look at one of the most commonly used candlestick formations which is the Bullish Engulfing pattern. You can see its layout below.
The bullish engulfing candle pattern is a trend reversal pattern. In particular, it develops at the end of a downtrend signalling a developing uptrend. It consists of a pair of candles.
The first candle is an orange bearish candle. On the IQ Option platform, it will have short wicks.
Right after this candle is a longer bullish (green candle). What's special about this candle is that the opening and closing are both lower and higher than those of the previous bearish candle. Thus the engulfing bullish pattern means this candle completely engulfs the previous bearish candle.
What does engulfing pattern indicate?
As the downtrend continues, the sellers are becoming exhausted. The small bearish candle at the end signals this. At the beginning of the next session, prices fall dramatically. But the buyers jump in driving the prices higher. At the end of this session, the trend has reversed and started rising. This is a good time to enter a buy position to take advantage of the rising trend.
How do you use the bullish engulfing pattern on IQ Option
As mentioned, this is a trend reversal pattern that signals a change from a bearing trend to a bullish trend. This means that immediately after you spot this pattern, you must enter a buy trade.
Using the AUDUSD chart above, we have a Japanese candle sticks chart with 5-minute candles. There are 3 bullish engulfing patterns. It's worth noting that in this chart, the green candles don't completely engulf the orange candles. Their opening prices are at almost the same level as the closes of the orange candles. But what we're looking for is whether the green candles' closes are higher than those of the orange ones.
Now, when should you enter a buy position?
As the 5-minute green candle develops, wait until the price reaches the opening of the previous orange candle. Enter a 5 minute buy trade. This ensures that your trade will be a winner by the time the trade expires and the green candle ends. If you're using candles of a longer time frame for example 30-minute, you can enter longer buy positions lasting 30 minutes or more.
How reliable is bullish engulfing?
A bullish engulfing pattern occurs frequently on charts of different assets and on different intervals. In more than 60% of its occurrences, it has a bullish reversal character. This is a pretty good indication of its potential. If you take advantage of this pattern by trading it, for example, on the lines of important price support, your chances of trend reversal and trading success will increase even more.
It should also be remembered that on intraday charts the price changes smoothly between candles, hence the pattern itself does not look as nice on the charts as it does on the diagram. What we are to find on the chart is a candle that with its upward long body covers the body of the downward candle preceding it.
The only way to learn how to identify the bullish engulfing candle pattern is by actually trading. Open an IQ Option practice account today and start practicing with it. We'd love to hear your experiences in the comments section below.
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