What is the bullish engulfing pattern?

The bullish engulfing pattern is a chart pattern that is used as a bullish signal in the stock market. It consists of two different days.

The first day of the pattern is a bearish day. During this day the stock will close lower then it opened. It does not necessarily need to close lower than the previous day.

The second day is a bullish day. It is an upward movement that completely engulfs the down day. That means the price action starts below the close of the last day and finishes above the close for the last day. Below is an example of how the bullish engulfing pattern looks.

Why is this a bullish pattern? During the first day the stock moves down lower, it even opens up lower the next day. Both of these show that the bears are in control of the stock. However when the stock pushes up and closes above the first day it shows that the bulls have taken charge and if they can keep that momentum going the next few days may be up days.

Tip the bullish day should be bigger than the bearish day. If the bullish day is not bigger than the bearish day this may not be a bullish buy signal.

Other Patterns

Knowing different candlestick patterns can help you learn more about the market as a whole. Here are some other patterns to watch.

Doji - A short 1 day pattern that can come in different forms.

Downside Tasuki Gap - A bearish signal for the future.

Bullish Belt Hold - This pattern forms after a large downward movement in price and signals a trend reversal.

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