Bullish Engulfing Pattern

Bullish Engulfing Pattern Properties

The opposite of a Bearish Engulfing Pattern is, as you might guess, a Bullish Engulfing Pattern. It is similarly powerful, and the set of rules is the same but in reverse.

The Bullish Engulfing Pattern suggests that a market has found support, and depicts two sessions where the bears dominate the first day but the bulls come back to life in some style in the second session.

It’s the same sort of price action as can be seen during a Hammer candlestick, except it happens over two sessions.

Once again, all you have to do is think about the price action that goes into the separate candlesticks, and immediately you can see why it’s a potential reversal. The second candle is akin to the second half of a Hammer session; the bulls suddenly wake up, and come storming back to the party. The market has to close strongly as well for it to engulf the first candle’s real body. All of this bullishness comes after a weak open on the second day, so it’s quite a revival that’s been achieved. 

         Figure 4-4: ICE Brent Crude Oil futures (all sessions, active unadjusted continuation); daily candlestick chart; 21 November 2007 - 11 February 2008, showing Bullish Engulfing Patterns on 5/6 December 2007, 23/24 January 2008, and 6/7 February 2008

This chart shows three Bullish Engulfing Patterns after pullbacks in Brent Crude at the end of 2007 and the beginning of 2008. If you look at a much longer-term chart for this one you’ll see that the market was up near (what was then) all time highs having rallied strongly in the previous couple of years. The preceding chart merely shows some short term pullbacks near the top of this bigger picture move.

Important note

We were in a long-term uptrend, there’s no doubt about that. In fact the trend was so strong that there would be many people out there looking for a buying opportunity, either because they’ve missed making money on the previous up-leg, or because they’ve covered longs and are now looking to get long once more on any weakness.

On these three occasions the market pulled back to a short-term Fibonacci retracement level, then the Bullish Engulfing Patterns appeared.

Bullish Engulfing Pattern summary

The Bullish Engulfing Pattern is two candles; the first a filled candle in a downtrend. The change occurs on the second candle when the bulls have a great day after a bad start, and they manage to post a close on day two above the open on day one.

This is generally a strong reversal pattern, and one I’d recommend keeping an eye out for.

The next pair of patterns we’re going to look at is Dark Cloud Cover and the Piercing Pattern.