In this comprehensive guide, we will teach you everything you need to know about trading with bullish and bearish engulfing patterns. These are two of the most common candlestick formations, and they can be used to signal a change in trend. We will discuss what each pattern means, how to spot them on charts, and how to trade them for maximum profits. So whether you’re a beginner or an experienced trader, this guide has something for you!
The first thing you need to know about bullish and bearish engulfing patterns is that they are both reversal patterns. It means that they signal a change in trend from bearish to bullish (in the case of a bullish engulfing pattern) or from bullish to bearish (in the case of a bearish engulfing pattern). These patterns are usually found at the end of a trend, and they can be used to enter a trade in the opposite direction.
There are two things that you need to look for when you’re trying to spot these patterns on a chart. The first is that there should be a clear trend in place before the pattern forms. This trend can be either bullish or bearish, but it needs to be clear and well-defined. The second thing you need to look for is a candlestick that “engulfs” the previous candlestick. It means that the body of the new candlestick should completely cover the body of the old candlestick.
Here’s a clear example of this pattern:
As you can see, there was a clear downtrend in place before the pattern formed. The first candlestick is bearish, and the second candlestick is bullish. The body of the second candlestick completely covers the body of the first candlestick, signaling a change in trend from bearish to bullish.
Now let’s take a look at an example of a bearish engulfing pattern:
Once again, there was a clear trend in place before the pattern formed. This time, the trend was bullish, and the pattern signaled a change to a bearish trend.
How to Trade With These two Patterns?
Now that you know how to spot these patterns, it is important to have a bullish and bearish engulfing pattern explained.
There are two things that you need to consider when you’re trading engulfing patterns. The first is the size of the candlesticks, and the second is the location on the chart.
The size of the candlesticks is essential because it tells you how strong the reversal is. Generally speaking, larger candlesticks are more reliable than small ones. It means that a bullish engulfing pattern with large candlesticks is more likely to be successful than one with small candlesticks.
The location on the chart is also crucial because it tells you where to enter the trade. The best place to enter the trade is at the beginning of a new trend. This means that you want to enter a long trade after a bullish engulfing pattern, and you want to enter a short trade after a bearish engulfing pattern.
Here’s an example of a long trade that was entered after a bullish engulfing pattern:
As you can see, the candlesticks are large, and the trend is clearly defined. The trade was entered at the beginning of the new trend, and it resulted in a profit.
Now let’s take a look at an example of a short trade that was entered after a bearish engulfing pattern:
Once again, the candlesticks are large, and the trend is clearly defined. The trade was entered at the beginning of the new trend, and it resulted in a profit.
What are the Benefits?
The biggest benefit of trading with engulfing patterns is that they can be used to enter trades at the beginning of a new trend. This gives you the potential to make a large profit if the trend continues in the direction you expect it to.
Another benefit of these patterns is that they are relatively easy to spot on a chart. This makes them ideal for traders who are just starting and don’t have a lot of experience analyzing charts.
Things to Have in Mind
There are a few things to keep in mind when you’re trading with engulfing patterns. The first is that they are not always 100% accurate. This means that there is a chance that the trend will not continue in the direction you expect it to.
The second thing to keep in mind is that these patterns work best when the candlesticks are large. This means that you should look for patterns that form after a period of consolidation or a sharp move in price.
The third and final thing to keep in mind is that these patterns are best used as part of a larger trading strategy. They should not be used as the sole basis for your trading decisions.
Bullish and bearish engulfing patterns are powerful reversal patterns that can be used to enter trades in the opposite direction of the current trend. These patterns are most effective when the candlesticks are large and when they form at the beginning of a new trend. If you can learn to spot these patterns, you’ll be well on your way to becoming a successful trader!