The bullish engulfing pattern is a bullish reversal pattern formed after the price fell. Here is a way to identify it:
1. The closing price of the first K line is lower
2. The second K line covers the first K line
As shown below:
Here's what the bullish engulfing pattern means:
1. On the first candlestick, it is a seller's market at this time, because they push the price lower during the trading session
2. But not long after, buyers enter the market and push prices up.
The bullish engulfing pattern is basically the same as the hammer, it all depends on the time frame you are looking at, as shown below:
If it is a bullish engulfing pattern on the 2-hour time frame, then it will form a hammer pattern on the 4-hour time frame. Essentially, a bullish engulfing pattern is one in which buyers have the upper hand.
Common Trading Bullish Engulfing Pattern Mistakes
Bullish engulfing in a downtrend is actually a rebound, as shown in the bullish engulfing pattern on the daily chart below:
This is actually a retracement of the trend. Let's make the time smaller, as shown in the figure below:
So a bullish engulfing pattern means a buyer's market, but if it's a long-term downtrend, then it's most likely a trend retracement.
So how to trade the bullish engulfing pattern?
Focus: MAEE formula
Maee formula:
1. Market structure (first determine whether it is an upward or downward trend, or a consolidation)
2. Value field (determine potential buying and selling points, such as judging by support resistance, moving average, trend line, etc.)
3. Enter trigger (trigger condition)
4. Exit (in other words, where is your stop loss and where is your target point?)
Let's illustrate with an example:
The picture below is the 4H chart of Meirui:
We first make sure that this is an upward trend, the dotted line in the figure is a strong support position, and the price pulls back to this position to form a bullish engulfing line pattern, then it is the entry point. Of course there is no mention here.
How to accurately capture market signals using the bullish engulfing line?
In addition to using a bullish engulfing pattern as an entry trigger, he can also alert traders to a potential trend reversal opportunity, so when a bullish engulfing pattern occurs on a higher cycle (like the weekly chart) and near a value area ( such as support), it indicates that the market may reverse. So how to do it?
1. First determine the bullish engulfing pattern that is inclined relative to the value area on the weekly chart
2. Then look for bullish chart patterns (such as flags, ascending triangles, etc.) within the range of the daily chart
3. Trading Bullish Chart Pattern Breakouts
Example: The bullish engulfing pattern of the Euro Pound in the weekly chart below
An obvious bullish engulfing pattern has formed on the weekly line, and then we will look for it on the daily chart, as shown in the daily chart of the European pound
A flag shape is formed on the daily chart, then wait until the price breaks through the upper edge of the flag shape and enter the market in time.
There are two things to watch out for when trading the bullish engulfing pattern
1. Entering an area with strong momentum
If you buy at support, do you want the most recent swing high to be closer or farther away? It must be hoped to stay away, so that the profit will be great. So how to find this kind of trading opportunity? Example: Approaching a support level after a strong trend
At this time, the price enters a strong support position, then the price will be under pressure shortly after the rebound. Let's go into the smaller cycle and watch it on the daily chart
At this time, it can be clearly seen on the daily chart that the price immediately pulls back after breaking through the support, and is ready to rebound at the support position to continue its upward trend.
2. Strong price signals
Not all bullish engulfing patterns are the same, we know earlier that a bullish engulfing pattern is usually a retracement of a downtrend, but if the bullish engulfing pattern has a range much larger than the first bar, it indicates that there is a lot of buying pressure big. The chart below is an example of a strong price signal:
Tip: If the height of the bullish engulfing pattern is 1.5 times the first candlestick, it is likely to have a strong price signal. But if you are on the lower time frames, there could be a breakout of the pattern.
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