Bullish engulfing pattern

• Direction: Bullish

• Type: Reversal

• Reliability: Moderate

• After an established downtrend, day-one continues the trend with a red candle

• Day-two is a long blue day that engulfs the body of the first day, closing well above the previous day.

The Bullish Engulfing is one of the more clear-cut two day bullish reversal patterns. The formation reflects buyers overtaking selling strength, and often precedes a continued rally in price.

• Day-One: Characteristics for Signal StrengthThe first day may even appear as a Doji, and the smaller day-one is and larger the second day is, the stronger the reversal signal. Dojis and small candles reflect uncertainty in the markets trend, thus the smaller the first days candle the better the signal of an end to the established bear trend.

• Day-Two: Characteristics for Signal StrengthThe second day bull move acts to confirm the death to the bear trend. The bigger the blue candle reflects the stronger the rally and the better the reversal signal.

• Overall Characteristics for Signal StrengthThis pattern is also more meaningful if it follows a lengthy downtrend, or a recent fast move down. Both these cases suggest the market may be oversold and more apt for a reversal.

• Support Level CreatedBullish Engulfing patterns also provide resistance levels for where the lowest level of price action reached. In the future this level tends to offer good support.