The Bullish Engulfing Candlestick Pattern is a bullish reversal pattern, usually occuring at the bottom of a downtrend. The bearish candle real body of Day 1 is usually contained within the real body of the bullish candle of Day 2. The interpretive power of the Bullish Engulfing Pattern comes forex bullish engulfing the incredible change of sentiment from a bearish gap down in the morning, to a large bullish real body candle that closes at the highs of the day.
Bears have overstayed their welcome and bulls have taken control of the market. A trader might buy at the close of Day 2 when prices rallied upwards from the gap down in the morning. In the chart above of the SPY’s, a trader might not enter the market long on the day after the Bullish Engulfing Pattern because the market gapped down significantly and even made new lows. An example of what usually occurs intra-day during a Bullish Engulfing Pattern is presented on the next page.