Ability to spot reversal patterns when they form is important skill for the traders. One of the popular reversal patterns is the bullish engulfing pattern.

It consists of 2 candlesticks, the first one is bearish and the second one is bullish. In this pattern the second bullish candlestick “engulfs” the bearish candlestick before it. Here is an example of an engulfing pattern:

Instruments : You can use this strategy for any Instruments.

 Timeframes :  15 minutes and above.

Bullish Engulfing Patterns :

Few examples are shown in the chart find out how the formation of bullish engulfing pattern results in price moving upward.

Bearish Engulfing Patterns :

Few examples are shown in the chart find out how the formation of bearish engulfing pattern results in price moving downwards.

Don’t look at all bullish engulfing and bearish engulfing equally.

You should not try to take a buy trade on every single bullish engulfing pattern and sell trade on every bearish engulfing pattern you see on your charts.

You should only be looking to buy when the bullish engulfing pattern and sell trade on bearish engulfing pattern forms on these levels:

• Support levels and these include resistance-turned-support levels or resistance levels.
• on Fibonacci retracement levels
• on upward trend line or downward trend line bounces

Trading Rules :

• Keep an eye on the support/resistance levels, trend line bounces, and fibonacci retracement levels.
• On noticing a bullish engulfing pattern, you can either buy at the market or place a pending buy stop order 1-2 pips above the high of the engulfing candlestick. And on noticing a bearish engulfing pattern, you can either sell at the market or place a pending sell stop order 1-2 pips below the low of the engulfing candlestick.
• Place you stop loss 2-3 pips below the low or high of the 2nd candlestick i.e engulfing candlestick for buy and sell trades respectively.
• Aim for take profit target levels 2 times at what you risked. If your stop loss is 40 pips then aim for a profit target of 80 pips.

Pros :

• Easy to spot and interpret.
• Can be used in addition to other tools like Fibonacci retracement and Pitchfork and can be combined other technical indicators.
• Tend to be relatively accurate.

Cons :

• Engulfing happens not so often.
• No strategy is 100% correct.