In forex trading, identifying market trends and finding entry opportunities are always the top priorities of traders. The Engulfing Bullish candlestick is considered one of the most powerful candlestick reversal patterns for prices to change from decreasing to increasing. Forex Trading will introduce details about the identification characteristics and how to trade with this model in the article below.
Information you need to know about the Engulfing Bullish candlestick pattern
“Bullish” in the name means bullish trend, indicating an increase in prices in the market. Meanwhile, “Engulfing” means to submerge. Therefore, this type of candle is a strong reversal candlestick pattern. The Engulfing Bullish pattern consists of two opposing candles occurring in a downtrend.
Characteristics of the Engulfing Bullish candlestick pattern
This candlestick pattern shows the complete dominance of the buyers. This is considered a truly reliable reversal signal. It is often used frequently by professional traders. This downtrend pattern appears when there is a combination of 2 candles as follows :
- First candle: This is a bearish candle.
- The second candle: Is a strong bullish candle, completely covering the previous candle and erasing the downward momentum of that candle.
Meaning of the Engulfing Bullish reversal candlestick pattern
The above downtrend candlestick pattern shows the strength and absolute strength of the bulls. It provides a clear signal of a reversal at the end of a downtrend. This reversal candlestick pattern is more effective than the Bullish Pin Bar pattern.
This reversal candlestick pattern is formed by combining two candles. The price movement in this model takes place from a downtrend to an uptrend. The Hammer (Bullish Pin Bar) candlestick (C) also has a similar direction of movement.
However, Engulfing Bullish is a combination of two candles (with a longer price creation time). This explains why this pattern is more reliable than the Bullish Pin Bar.
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Instructions on how to identify bullish engulfing candles
To avoid confusing Bullish Engulfing with other candlestick patterns, traders need to remember the identifying characteristics. As follows:
- The first candle is bearish (red candle) with a short and small body.
- The second candle is bullish (green candle) with a very long body that completely covers the first candle.
- The opening price and low price of the second candle in the pattern must be lower than the closing price of the first candle. At the same time, the closing price and high price of the second candle must be higher than the opening price of the first candle.
- The Engulfing Bullish candlestick pattern often appears at the end of a long downtrend or after a sharp decline.
- If the first candle in this pattern is in the form of a Doji candle, the reliability of this pattern will be rated higher.
What do traders know through the Engulfing Bullish candlestick?
The Engulfing Bullish Candlestick Pattern is simple to use. It helps traders analyze market psychology and upward price trends early. When applying this candlestick pattern, you can identify areas with high risk and profit rates when trading forex.
When using this model, traders need to pay attention to the following characteristics:
- The larger the trading volume of the second candle, the more reliable the reversal signal.
- If the price surpasses the support zone, the signal will be more reliable.
However, the reliability of this reversal signal is only for a short period. There is no guarantee that prices will continue to increase over the long term.
How to trade the Engulfing Bullish reversal candlestick pattern
After understanding the concept and some notable characteristics of this reversal candlestick pattern, the trading strategy with this pattern becomes an important content. Any investor following the price action method needs to master it.
The simplest method of trading with Engulfing Bullish
Based on the illustration, we can see the Engulfing Bullish pattern appears immediately after a prolonged downtrend. To achieve attractive profits, you can refer to how to set up orders as follows:
- Entry point: Place a BUY order right at the opening price of the third candle.
- Stop Loss: Set the Stop Loss below the lowest price of the model, with a distance of 1-2 pips.
- Take Profit: Take profit at the trend resistance, as shown in the picture.
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Combine the bullish engulfing candle with other indicators
Because the engulfing candlestick pattern is just a signal predicting a reversal. To trade successfully with this model, traders need to combine the use of other technical indicators.
Combine Engulfing Bullish with MA30 indicator
To get the most out of the Engulfing Bullish model, you can combine it with the MA30 moving average indicator:
- Best trading time: Period from M5 to M15 (from 5 minutes to 15 minutes).
- The MA30 line is used as a trend indicator: When the price moves above the MA30 line, it shows that the market trend is increasing. On the contrary, when the price moves below the MA30 line, the market trend is down.
- Entry point: When the pattern appears above the MA30 line while the market is trending up, you enter a buy order (BUY) at the opening price of the third candle
Combine Engulfing Bullish with the support line
To effectively take advantage of the Engulfing Bullish model, you can combine it with support lines:
- Timeframe: Use the M5 timeframe (5 minutes) and make sure that the candle ends the trade in 5 minutes.
- Entry point: When the pattern is formed at the support area. Place a BUY order at the opening price of the third candle.
The support line is a sign that the price is likely to rise. When the Engulfing Bullish pattern appears in this area, it creates a safe and reliable trend reversal signal.
Some limitations when using this Forex model
There are some limitations of this model that traders should clearly understand:
- To identify a bullish reversal, there needs to be an existing downtrend to reverse.
- A pattern of this type is highly accurate when it appears at the end of a downtrend.
- Traders should not only focus on the two candlesticks that form the Engulfing Bullish pattern. Please observe previous candlesticks to have a better overview when making decisions on entering orders.
Besides this forex candlestick pattern, you can also learn more about the evening star candlestick pattern and the pattern bunting. These are two popular candlestick reversal patterns, used by many investors. Please try to use it, explore it, and then make a smart decision.
Epilogue
The article on Forex Trading has provided basic knowledge about the Engulfing Bullish candlestick pattern. This model is always effective in helping traders identify trend reversals. Overall, if you are sharp and know how to place orders appropriately, this candlestick pattern can help you achieve profits far beyond your expectations!
Frequently asked questions
Definition of Engulfing Bullish Candlestick
Engulfing Bullish Candle or bullish engulfing Candle is a Japanese candlestick pattern. This pattern consists of two candles, first a red candle (bearish), followed by a green candle (bullish) whose body completely covers the body of the previous red candle.
The most effective trading market structure with Engulfing Bullish
At its core, finding the Engulfing Bullish pattern in trading is about finding the moment when the buyers have superior strength compared to the sellers. At the same time, that strength is maintained in the coming time. This creates an advantage when we make a buy transaction.
What should you pay attention to when entering an order?
Investors need to pay attention to:
- Entry point: Place a BUY order at the opening price of the third candle.
- Stop Loss: Set the Stop Loss below the lowest price of the model, with a distance of 1-2 pips.
- Take Profit: Take profit at the trend resistance, as shown in the picture.
