What is a Bullish Engulfing Pattern?
A bullish engulfing pattern occurs in the candlestick chart of a security when a large white candlestick fully engulfs the smaller black candlestick from the period before. This pattern usually occurs during a down trend and is thought to signal the beginning of a bullish trend in the security.
How Does a Bullish Engulfing Pattern Work?
The bullish engulfing pattern can be illustrated in the following manner using candlestick charting:
In this example, the smaller black candlestick is overshadowed by the larger white candlestick. This indicates the stock opened the second period lower than the previous close and tried to fall lower during the trading period. However, investors began to buy the stock, pushing the price sharply higher at the close and indicating bullish sentiment has taken over.
Why Does a Bullish Engulfing Pattern Matter?
The bullish engulfing pattern indicates a potential reversal of investor sentiment and is suggestive of a stock having reached its minimum value over a given time period. Consequently, the stock may experience an upward, or bullish, movement in the near future.