How to trade Bullish Engulfing candle in Forex

Understanding and applying candlestick patterns is an important skill for traders. That helps identify market trends and make accurate decisions. One of the most popular candlestick reversal patterns is Bullish Engulfing. Let’s join Forex Trading to learn about The Bullish Engulfing candle and its uses!

Some things you need to know about the Bullish Engulfing candle pattern

Bullish Engulfing is one of the important candlestick reversal patterns in technical chart analysis. It often signals a shift from a downtrend to an uptrend. The characteristic of this model is that the bullish candle will completely “cover” the previous bearish candle. The presence of Bullish Engulfing shows that the power of the buying side is overwhelming the selling side. It promises to open up prospects for a new uptrend.

Basics of Bullish Engulfing Candle

The Bullish Engulfing candle pattern consists of two candles, with the first candle being bearish, followed by a bullish candle. The main feature is that the second candle must completely “cover” the first candle. This means that the body of the bullish candle does not just cross the body of the bearish candle. It can also cover both the upper and lower shadow of the previous candle. This pattern is often considered a signal of a trend reversal. They show a strong bullish move.

Constituting elements of Engulfing Bullish

The main components of the Bullish Engulfing pattern  are:

• The first candle is bearish. It represents a period of declining market prices. This candlestick’s body needs to be larger than the second candlestick’s body. This is often considered a precursor to further volatility.
• Second candle: This is a candle signaling a price increase. It shows strong price movements and often signals a trend reversal. The body of the second candle must be longer than the body of the previous candle. At the same time, it covers the entire body of the previous bearish candle.

Using the Bullish Engulfing model can bring great profits to investors.

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Recognize the bullish engulfing candle on the chart

Traders should note some characteristics to recognize the bullish engulfing candlestick pattern as follows:

The Bullish Engulfing pattern consists of two candles with opposite directions of movement. In this structure: 

• The first candle is bearish (red candle) with a short body and relatively small size.
• The next candle is bullish (green candle), the body is long and completely covers the previous candle.

  

• The opening price and low of the second candle need to be lower than the closing price of the first candle. The closing price and high of the second candle are higher than the opening price of the first candle.
• The Bullish Engulfing pattern is often seen at the end of an extended decline. Or the pattern may appear after a significant bearish cycle. 
• When the first candle is a Doji candle, the authenticity of the pattern is often higher.

Some trading methods are based on the Bullish Engulfing candle pattern

It is important to master the concept and main characteristics of the Bullish Engulfing candle pattern. At that time, learning the trading strategy with bullish engulfing candles is the essential thing that every price action investor needs to understand.

The simplest bullish engulfing candle trading method

We can see the Bullish Engulfing pattern appear immediately after a prolonged downtrend. To take advantage of this opportunity, you can apply the following order placement method:

• Entry point: Place a buy order (BUY) at the opening price of the third candle.
• Stop loss: set at about 1-2 pips lower than the lowest price of the pattern.
• Take Profit Point: Set your take profit target at the trend resistance level, as shown in the picture.

  

Bullish Engulfing candle combined with other indicators

The Bullish Engulfing model only makes predictions about the possibility of a reversal. To trade effectively, traders should combine it with other technical indicators. Detail:

Combine the Bullish Engulfing model with the MA30 moving average.

• Possible conditions: Choose your timing wisely. The golden hour for all transactions should be within the time frame from M5 to M15. Or also understood as from 5 minutes to 15 minutes.
• The MA30 moving average is a trend indicator. The price line is above the MA30 line. This means that the market is progressing upward. On the contrary, when the price line is below the MA30 line, the market is likely to be in a downtrend.
• Entry point: Bullish Engulfing model is above MA30. When the market is rising, you can place a buy order at the opening price of the third candle. They are often indicated by the blue arrow in the picture.

  

Combining the Bullish Engulfing pattern with the support line.

• Occurrence conditions: The most appropriate time is the M5 time frame (5 minutes). It is best to complete the transaction within this same period.
• Entry point: Bullish Engulfing pattern formed at the support zone. Traders can place a buy order at the opening price of the third candle. (Indicated by the blue arrow as shown in the picture).

  

Support lines are often a sign that the price is likely to bounce back. When the Bullish Engulfing candle pattern appears in this zone, it means that the trend reversal signal is very safe and reliable.

Note when using bullish Engulfing candles

Risk and profit management is an integral part of Forex trading. Especially when you use the Bullish Engulfing pattern. You need to understand how to set stop loss and take profit orders to protect profits and minimize risks. In the next paragraph, we will show you how to set stop losses. That could also be the expected profit level. The following are important notes when trading in unstable market conditions. Additionally, you will also learn about how to test other combinations of factors. The purpose is to make more accurate trading decisions.

Manage risk and profit when using Engulfing candles

Risk and profit management is key in Forex trading. Setting stop loss and take profit orders helps limit your risk and protect your profits. To set a stop loss, you can use the range of Bullish Engulfing. The expected profit level should be determined based on the market structure and your personal goals.

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Avoid trading bullish engulfing candles in volatile markets

Trading with the Bullish Engulfing candle pattern in an unstable market may increase risks. Worse yet, this is a factor that reduces the likelihood of success. So, look for stable trading conditions with clear market trends.

Method to verify other factors 

Besides Bullish Engulfing, consider adding other factors to the chart such as The Morning Star candle. Make sure you have a comprehensive and informed view of the market. Check price structure, other candlestick patterns, and technical indicators to identify the trend. At the same time, it helps to find stronger trading signals.

Epilogue 

Thus, the Bullish Engulfing candlestick pattern helps forex traders identify trends and make smart decisions. However, using Bullish Engulfing requires a deep understanding. As well as a smart combination with other elements to enhance accuracy. Don’t forget to manage risks and returns carefully to protect your investment capital. That is what Forex Trading wants to provide about Bullish Engulfing Candle.

Question related to Bullish Engulfing candle

How to trade with the Bullish Engulfing pattern?

Traders can place a buy order (BUY) at the opening price of the third candle. To manage risk, place a stop loss order 1-2 pips below the low of the pattern. The take-profit target can be set at the next resistance level or according to the market price structure.

Why should you combine the Bullish Engulfing model with other technical indicators?

The Bullish Engulfing pattern only gives a signal of a possible reversal but does not guarantee 100% success. The model should have other elements. For example, using other technical indicators in harmony. Or like a moving average or an RSI indicator. They can help identify trends and confirm stronger reversal signals. This helps traders have a more comprehensive view of the market and minimize risks.

What are the risks to keep in mind when trading with the Bullish Engulfing pattern?

The main risk when trading with the Bullish Engulfing pattern is the possibility of false signals. The pattern can appear in a volatile market, without a clear trend, or in an overbought zone. To minimize risk, traders should use stops, combine other technical indicators, and avoid trading when the market is unstable. Always check other factors on the chart to make the correct trading decision.