A Bullish Engulfing pattern after a significant downtrend consists of two candlesticks having the following characteristics:
The first candlestick is bearish, representing the continuation of the downtrend.
The second candlestick is bullish and completely engulfs the body of the first candlestick. The closing price of this candlestick should be higher than the opening price of the first candlestick. The larger the engulfing candle, the more significant the pattern.
(Fig 1.3 - Bullish and Bearish Engulfing)
The Bullish Engulfing pattern indicates a potential reversal from a downtrend to an uptrend. It suggests that buyers have overwhelmed sellers, leading to a shift in momentum, as evidenced by the second candlestick completely engulfing the first one.
Like other reversal patterns, a Bullish Engulfing pattern is more significant when it forms near key support levels.
Vice versa for Bearish Engulfing pattern as mentioned above.
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