The bullish engulfing pattern is a very useful reversal candlestick pattern that helps us spot reversals in a stock. A stock that experiences a bullish engulfing pattern after a bearish run shows us that the bulls are coming in. There is strength in the stock and it is likely the stock will reverse and move up.
The diagram above shows how a bullish engulfing pattern looks like. The stock may fall for a few days and then the stock gap lower but closes way above the previous day's bar. The bullish green bar is said to have engulfed the negative red bar. This shows us that the bulls are coming in and they are winning. The stock then moves higher.
The above chart of PAYX is a textbook example of a bullish engulfing pattern. The stock had a decline and all of a sudden there appeared a large bullish green bar that engulf many candles. This showed that there were many buyers stepping in. The stock reversed and moved higher.
PFE also had a bullish engulfing candle and the pattern marked the short term bottom of the stock. Look how the stock reverse direction and moved higher from there.
The chart of AN above is another great example of the bullish engulfing pattern at work. A large bullish candle appeared and engulfed the previous bar. The stock rose from there.
BBBY had a large bullish engulfing bar which marked the short term bottom for the stock. The stock was able to climb for several weeks after the pattern appeared.
The bullish engulfing pattern can be combined with other technical indicators to give us a trading strategy. For example, You can use candlestick patterns with Bollinger Bands, Stochastics and the MACD.
In the chart above, you can see GLUU forming a bullish engulfing pattern in January. The stock was also at the Bollinger's lower band. Stochastics were giving a buy signal and the MACD showed slowing momentum to the downside. The combination of so many indicators and the candlestick pattern provided the Swing Trader a very good trading opportunity.
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