The bullish engulfing candlestick pattern indicates a bullish move ahead. It is composed of two candles.
- A bearish candle of any size (on the left side)
- A bullish candle that engulfs the bearish candle within it (on the right side)
As from the image above a black body (Bearish Candle) is completely engulfed by the white body (Bullish candle). The most important feature is that the bullish candle is “outside” of the bearish candle. This means that both the low and high of the 2nd candle are beyond the 1st candle:
- The 2nd candle low is lower than the 1st candle low.
- The 2nd candle high is higher than the 1st candle high.
This particular bullish candlestick pattern is one of the most important and most visible patterns in the Forex market.
Where do you find Bullish Twins?
The most suitable place to find a reliable Bullish engulfing pattern is at:
- Trend line support
- Fibonacci Retracement levels (Acting as supports)
Figure 2: WTI Weekly Chart
How do you implement this pattern?
We prefer to follow the strategy step by step to make a trading plan which is more viable to see profit taking.
- Find the Evening Star pattern on the chart.
- Draw the trend lines to connect support and resistance.
- Draw the Fibonacci tool form the low to the high of the bullish candle or high of the continuous bullish move.
- Locate the 50%, 61.8% Fibs and 78.6% Fib: all are the reliable points. But most beneficial and least risky is 78.6% Fib level that also enhances reward and minimize losses.
- There are two long entry points for the pattern. The first is the break of the high of the bull candle. Second is the Fibonacci level as discussed in point 5.
- After the completion of the pattern, look for a bearish retracement of the price to the Fibonacci levels already drawn in point 5.
- If the candle pattern is observed at weekly chart then go to the daily chart.
- In the example below, WTI Crude Oil Bullish engulfing is observed on weekly chart. For EW (Elliott Wave) Count we will go to the daily chart time frame.
- Stop Loss should be placed below the low of the bullish engulfing pattern.
- Take profit should be equal to the size of the bullish engulfing candle or according to the EW count.
Figure 3: WTI Daily Chart
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