The bullish Engulfing reversal pattern consists of two Japanese candlesticks of opposing colors. It forms at the end of a downtrend or near a support area.

The first candle has a black real body as expected after all, to confirm the sellers’ intention to push prices even lower during the downtrend.

Of course, the small size of the real body may raise an eyebrow to the experienced technical analyst. The second candle is long and has a white real body to indicate that demand and supply have just shifted roles. Demand is greater than supply or in simple terms the buyers outweigh the sellers as shown by the long white body. The import thing to notice here is that the body of the first candle is contained within the body of the second candlestick. The shadows are of little or no valuable importance for this pattern.

Now, let’s take a look at the specifications of the Bullish Engulfing pattern:

  1. There must be an undisputed downtrend.
  2. The first candle of the pattern is small and has a black real body.
  3. The second candle is long and has a white real body.
  4. Last, the body of the long white candle contains the previous body, the black real body.

Great! What about any potential buy setup?

Well, I would place a buy order right above the high price of the pattern. This way the price will confirm my forecast and expectation, but it will also boost my confidence. Additionally, I would place a protective stop loss just under the low price of the pattern just in case the market goes against me.

Remember nothing is 100% and the markets are no exception. Stay tuned for more.