Bullish Engulfing Pattern: A Forex Price Action Signal

Bullish Engulfing Pattern Definition

A bullish engulfing pattern is a candlestick pattern that signifies a reversal in a downtrend. It forms when a small black candlestick is followed by a large white candlestick that engulfs the previous day's range.

Characteristics and Significance

The bullish engulfing pattern indicates a shift in market sentiment from bearish to bullish. It is typically found at the bottom of a downtrend or near support levels and is considered a reliable reversal pattern, particularly after an extended downtrend.

Trading Implications

Traders use the bullish engulfing pattern to identify potential buying opportunities. The large white candlestick represents buying pressure overwhelming selling pressure, suggesting a potential trend reversal. Traders may enter long positions after the close of the bullish engulfing candle or the following day, placing a stop-loss order below the low of the pattern.