The bullish engulfing candlestick pattern signals a shift in market control, indicating that buyers have gained dominance and outnumbered sellers. This pattern typically forms at the bottom of a downtrend and is seen by traders as a potential sign of a market reversal or bottom.
It occurs when a small red (bearish) candle is followed by a larger green (bullish) candle that completely engulfs the previous candle’s body—both its high and low. This pattern suggests strong buying pressure and growing bullish momentum. Refer to the image below for a visual representation.
The bullish engulfing candlestick pattern forms when the market opens below the previous day’s close, but strong buying momentum drives the price upward, closing above the previous day’s open. This signals a shift from bearish to bullish sentiment and is often seen as a potential entry point for long positions.
A 2018 study titled “Technical Analysis and Candlestick Patterns” by the University of Michigan found that the bullish engulfing pattern has a success rate of around 65% in forecasting future price gains. This highlights the value of using historical price action and candlestick formations like the bullish engulfing pattern to assess market sentiment and support smarter trading decisions.
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