[ad_1]

Bullish Engulfing Candlestick

The bullish engulfing candlestick is a well-known candle pattern composed of two candle lines. The first one is black and the second is a white one that is taller than the prior black candle, engulfing it or overlapping the black candle’s body. The bullish engulfing candlestick acts as a bullish reversal 63% of the time, which is respectable, ranking 22 where 1 is best out of 103 candle patterns. The high frequency rank (12) means that this is as plentiful as children at a playground.

Bullish Engulfing: Important Results

Theoretical performance: Bullish reversal

Tested performance: Bullish reversal 63% of the time

Frequency rank: 12

Overall performance rank: 84

Best percentage meeting price target: 67% (bear market, down breakout)

Best average move in 10 days: -6.31% (bear market, down breakout)

Best 10-day performance rank: 14 (bear market, down breakout)

All ranks are out of 103 candlestick patterns with the top performer ranking 1. “Best” means the highest rated of the four combinations of bull/bear market, up/down breakouts.

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Bullish Engulfing

Bullish Engulfing: Discussion

The bullish engulfing candlestick, at first glance, appears to perform quite well. It has a reversal rate of 63%. That means price closes above the top of the candlestick pattern 63% of the time. The bad news is that with an overall performance rank of 84, the post breakout performance can be dreadful.

A closer look at the numbers shows that downward breakouts are where this pattern outperforms. The best move 10 days after an upward breakout is a drop of 1.18%. Usually you would see a rise 10 days after an upward breakout but not in this candlestick. Thus, if you are going to rely on this candlestick then look for a downward breakout. The best move appears in a bear market, so that is the way to trade this one.

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book where the tips appear.

Bullish Engulfing: Identification Guidelines

Characteristic	Discussion
Number of candle lines	Two.
Price trend leading to the pattern	Downward.
Configuration	Look for two candles in a downward price trend. The first is a black candle followed by a taller white one. The white candle should have a close above the prior open and an open below the prior close. In other words, the body of the white candle should engulf or overlap the body of the black candle. Ignore the shadows.

Bullish Engulfing: Three Trading Tidbits

Bullish engulfing candles that appear within a third of the yearly low perform best — page 320.
Select tall candles — page 320-321.
Avoid bullish engulfing candles that appear in a downward primary trend — page 322.

Bullish Engulfing: Example

This bullish engulfing candlestick acts as a temporary reversal of the downward price trend. This is also one of the trading setups that I suggest you avoid. Why? Because the primary trend is downward. The bullish engulfing candlestick reverses that trend, but only for a short time. The primary downward trend takes over and price resumes falling.

Trade bullish engulfing candlesticks when the primary trend is upward. Look for a downward retrace in a rising price trend for the best chance of success.