Two famous trading patterns bullish engulfing candle and Bearish Engulfing attract traders’ attention. Because they are seen as strong signs of reversal. It starts from a downtrend to an uptrend in the market. Let’s explore Bullish Engulfing in detail with Forex Trading
What is Bullish Engulfing?
Along with the Heiken Ashi candlestick pattern, Bullish Engulfing is a reversal candlestick pattern in stock technical analysis. It usually appears at the bottom of a downtrend. The main purpose of the model is to signal a possible reversal to an uptrend. This is an important candlestick pattern in identifying potential market reversal points.
What is a Bullish Engulfing Candle?
The Bullish Engulfing pattern is also known as the “bullish engulfing” candlestick pattern. It often appears during periods when the market is falling. It is formed from a pair of candles. The first candle represents a price decline. At the same time, the second candle with a larger candle body completely covers the previous candle. This “engulfing” shows the strength of the buying side. They indicate a strong decision to push prices up after a period of decline or sideways price.
Refer to the following case:
During a downtrend, the Bullish Engulfing pattern appears. The market often reverses from a decrease to an increase.
Significance for investors and traders of the Bullish Engulfing candlestick pattern
For long-term investors, Bullish Engulfing can be a sign of the right time. Especially to start to accumulate stocks in a portfolio. This is especially important when the market has gone through a long period of decline and shows signs of recovery.
The Bullish Engulfing pattern reflects the power and complete control of the buyers in the market. It is a clear signal for a reversal at the end of the down phase. Especially when the green candle takes over and completely overwhelms the previous red candles.
See more: Read candlestick charts: Basic & advanced material
Instructions on how to set up the Bullish Engulfing model in detail on TradingView
TradingView is a popular platform that allows you to monitor, analyze, and trade financial instruments. Below are detailed steps to set up and identify the Bullish Engulfing candlestick pattern on TradingView.
Install the bullish engulfing candlestick pattern on TradingView
Next is to apply it to trading platforms so that it can be used effectively. To apply the bullish sinking candlestick pattern on any platform, the first step is to create an account. Then log in and open the chart.
After completing registration, you will proceed to chart analysis. Here’s how to install the model on TradingView:
- On the chart, click the Fx icon in the top toolbar.
- In the search box, enter the keyword ” Bullish Engulfing “.
- When the results appear, click on the first choice.
You have finished applying the pattern on the chart. When this frame is closed, the indicator will appear below the price.
The chart below uses the indicator with signals represented by yellow candles. On the H1 time frame, you can see the signal in this zone quite accurately.
Usually when trading on the H1 time frame, you can set take-profits from 1 to 3%. If you trade on a larger time frame, you can adjust the take-profits higher.
If you rely solely on the model, you can see a fairly high winning rate (exceeding 50%). However, to trade perfectly, you must understand this pattern better. You should then learn how to combine it with many other tools and indicators. As a next step, let’s explore how to trade the Bullish Engulfing candlestick pattern in the next section.
Ways to use the Bullish Engulfing candlestick pattern
In some situations, when two candles in a engulfing candle pattern combine, it will form a Hammer Candle. Therefore, the Bullish Engulfing and Hammer Candlestick patterns will share similar properties and trading styles.
As soon as the bullish candle ends, you can place a Buy Stop order at the top of the candle pattern. Then you set the Stop Loss at a level slightly below the high of the bullish candle. This is to minimize risk when the market moves. This is considered a safe and reasonable way. It helps protect the account against unwanted fluctuations after the pattern appears.
As soon as the candle closes, place a Buy order and place a stop loss slightly below the shadow of the bullish candle. The purpose is to prevent the possibility of profit-taking.
Place a Buy Limit order at a price equal to half the bullish candle. You then set the Stop Loss at a level slightly below the high of the bullish candle. The purpose is to minimize risk when the market moves. This method can bring the highest profits. However, sometimes orders cannot be matched because the price continues to increase without a rebound.
Tips for trading the bullish engulfing candlestick pattern for Forex
As you can see, trading the engulfing candle candlestick pattern offers several benefits. However, how to read japanese candlesticks has limited effectiveness. Similar to using multiple ropes, the rope becomes stronger. Other additional tools may also be applicable. The aim is to increase the strength of this engulfing candle pattern.
Below, we will introduce three tools to help increase the accuracy of trading signals:
- Horizontal support levels.
- Trend lines have a bullish support function.
- Moving average.
Horizontal support for the Engulfing candle
When the cryptocurrency market is on a strong uptrend, we will observe a series of higher highs and higher lows on the price chart.
Each new higher high is being formed, breaking through the old one. After a successful breakout, the price will usually consolidate and correct. In the cryptocurrency market, it is common to see prices return to test the old peak that was broken.
In this example, Bitcoin experienced a 224% increase and needed consolidation. It then corrected about 20% and fell near the $10,120 price level. This is the previous peak in May and June 2020. It marks the start of a new uptrend, with a 500% upside target.
When a engulfing candle candlestick pattern appears near the old high it has been broken. This can be considered a strong signal that the uptrend is ready to continue.
Trendline support near the Engulfing candlestick pattern
It is quite common for the market to climb higher without giving much time to rest. The thing is that broken old highs and resistance levels may not have a big impact. But the market continues to move up.
Another useful tool to increase the accuracy of engulfing signals is to use a bullish support trend line.
Engulfing candle candlestick patterns often provide the best signals. Especially when the market has gone through a period of consolidation at the bottom. This consolidation ends and the market reverses at an uptrend line with an engulfing candle candle. That is a strong signal for price increases.
In the chart above, it can be seen that LINK is trying to recover from the sell-off. The cause was the pandemic in March 2020. As the uptrend began to emerge, LINK formed a bullish pattern. And then see the consolidation.
An uptrend line often forms from the ending points of corrections. This has been demonstrated by LINK, which has experienced a period of strong increase above the trend line. At the same time, the engulfing candle pattern contributed to pushing the price of this altcoin up 25% in just a few days. Then, its price increased nearly eight times over the next four months.
The moving average is a Bullish Engulfing indicator
Many traders and large institutions closely monitor an indicator known as the 200-day simple moving average. Because it provides a reliable technical support base for the market.
When the cryptocurrency price chart corrects the moving average an engulfing pattern appears. This is often a strong signal that the trend may be about to reverse higher.
In the chart, we are observing Bitcoin in the 4-hour timeframe. Bitcoin is correcting the previous uptrend. Meanwhile, there is exposure to the 200-day simple moving average. At this point, a engulfing candle pattern appears. It creates momentum for a new trend that can reach up to 250%.
See more: Broker IC Markets and interesting revelations
Some things to pay attention to when trading through the Bullish Engulfing candlestick pattern
To take advantage of the engulfing candle pattern effectively, you need to pay attention to the following points:
- A engulfing candle pattern appearing at support can generate a strong reversal signal.
- The trading volume in the UP candlestick needs to be large enough. An increase in trading volume shows the strength of buyers in that area. This increases the model’s accuracy rate higher.
- Avoid using the engulfing candle pattern when the market is moving sideways. Decide not to apply this model when the price moves into the sideways zone. Instead, it is advisable to wait and use the model after a bearish cycle has taken place.
- To increase accuracy when opening orders, you should combine the engulfing candle pattern with other trend reversal indicators. For example, MACD, RSI, Stoch,… Bullish Engulfing appears along with reversal divergence signals. This will increase the accuracy of the command.
- Can create a combination with reversal candlestick pattern. You can combine the inverted head-and-shoulders pattern and the double-bottom pattern. The bullish engulfing candle pattern appears on the right shoulder of the inverted head-and-shoulders pattern. We can consider opening the order as soon as the bullish engulfing candle ends.
Epilogue
Above is the basic knowledge about the Bullish Engulfing candlestick pattern. This model is very effective in helping traders identify market reversal trends. If you have acumen and know how to place orders appropriately, the engulfing candle candlestick pattern can help you achieve unexpected profits. Follow Forex Trading to know more about Bullish Engulfing and the Forex market.
Bullish Engulfing FAQ
Is Bullish Engulfing highly reliable?
The engulfing candle pattern is considered a strong reversal signal when it appears after a red candle. Especially when it appears at a key support level or in a long-term trend.
How to use Bullish Engulfing in Trading?
Traders usually open a buy order right after the green candle of the engulfing candle Pattern closes. They trade with stop-loss placed below the high of the previous red candle. Profit targets are usually placed at the next resistance levels.
Is it necessary to combine Bullish Engulfing with other indicators?
Although Bullish Engulfing can be used independently. But combining with other indicators such as MACD, and RSI. It is also possible with Bollinger Bands to help enhance its signals and accuracy.
