Bullish engulfing pattern in Forex
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Bullish engulfing pattern comprises of two candles:
- First is the prior black candle
- Second is a larger white candle that engulfs (covers) the first, prior black candle
Bullish engulfing pattern always appears at the bottom of the current down-trend. This is why it is called a reversal pattern. Its purpose is to reverse the current down-trend in the upward direction.
The main rule is that the second, white candle completely engulfs/covers the prior, black candle. That is, the body of the white candle has to engulf the body of the first, black candle. It does not have to engulf the shadows/wicks of the black candle. The black candle can be in any format i.e. spinning top, doji etc. As long as it is black and is engulfed by the white candle’s body, the pattern qualifies as a bullish engulfing pattern.
Do not place a buy every time you see a bullish engulfing pattern. The reason why is because bullish engulfing patterns occur quite regularly in the market. Therefore, they need a lot more confirmation than its occurrence alone, to place a trade.
In the Forex chart above, we can see how the market reverses back up in the upward direction after the appearance of the bullish engulfing pattern.