The Bullish Engulfing pattern is one of the most established candlestick patterns in forex trading. This single pattern consists of two candles that indicate falling prices are about to shift to rising prices. This happens when a sizeable green candle engulfs the body of the prior small-sized red candle.

Think of it in this example, a small wave is overtaken by a large powerful wave. The force of the larger wave has taken control and changed the direction of the water. This is what occurs when Bullish Engulfing is formed within the market.

Many forex traders appreciate this pattern because the market psychology is clear. The first red candle indicates sellers were in control of the market. The second green candle was able to demonstrate buyers are now in control but at a much more powerful force. As they did so, the short sellers were forced to buy back their positions, adding to the profit potential often associated with a price reversal.

How to recognize a Bullish Engulfing Pattern

Misidentifying the Bullish Engulfing pattern can cause significant losses in a trader's trading account. The Bullish Engulfing pattern must meet clear and specific trade requirements that must be present for the Bullish Engulfing to be recognized.  

First, the Bullish Engulfing pattern must occur after a downtrend. It is impossible to have a bullish reversal pattern without a prior downtrend to reverse. The downtred give the whole meaning to the pattern.  

The bearish candle must be present as the first candle of the Bullish Engulfing pattern. This candle is the last push of the sellers prior t the buyers becoming in control. The candle does not need to be a large candle, however the candle must close below the open.

Psychological Meaning of Bullish Engulfing

Market psychology is very important for trader decisions, and bullish engulfing provides a clear example of the view and psyche of the traders involved in the process. 

The first red candle represents who is in control of the momentum, sellers, and highlights the significance of the sellers in any bearish trend downwards. The bears made their conclusion the asset is being overvalued and are continuing to put further selling pressure, this represents the bearish emotion forming to drive the bearish trend lower.

Pros and Cons of Bullish Engulfing

All trading methods have pros and cons to consider. Understanding this will help you to utilize the Bullish Engulfing pattern more effectively.

The Bullish Engulfing pattern is easy to recognize once you have an idea of what you are looking for. The pattern is visual so it is easy for a beginner to grasp but still has applications for a trader who practices advanced techniques. You don't need to do any calculations or use an indicator because of the simplicity of the formation.

Real World Instances of A Bullish Engulfing

Real world instances of the Bullish Engulfing pattern illustrate how it performs in actual physical market conditions. These instances also include both successful trades and difficult, but often enlightening, lessons.

The financial crisis in 2008-2009 provided tremendous Bullish Engulfing opportunities. After months of falling prices, the S&P 500 and other major indices provided clear engulfs in price charts which were ultimately the beginning to multi-year bull markets. Traders that saw these were able to make many times their expected returns.

Key Takeaways to Successful Trading

The Bullish Engulfing pattern can be a great resource for forex traders if it used correctly in your trading strategy and overall approach! After properly recognizing this two candle formation, you can observe the possibility of trend reversal by attracting sellers and creating buying pressure.

To properly identify the Bullish Engulfing pattern, certain criteria must be met and correctly observed within market price action. To meet the criteria for the Bullish Engulfing pattern to be valid and useful, you must have identified the presence of a downtrend, a bearish first candle, and a bullish second candle that completely engulfs the bear candle.

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