Bullish Engulfing

The bullish engulfing is a very powerful 2-candle reversal pattern. It is most powerful when found at a support after a downtrend.

It begins with candle 1 closing red, followed with candle 2 gapping down and opening below the previous candle's close, showing potential seller control at open.

The gap down is met with extreme buyer presence, with buyers taking price up and closing above the previous day's open, completely engulfing the previous candle's body.

On 10/13/2022, SPY gapped down heavily after days and weeks of a heavy downtrend toward 350. After gapping down to 350, sellers were met with extreme buyer presence, completely engulfing the previous candle and marking a potential change in the trend.

To give you an idea of the power of this candle, the low of this specific bullish engulfing is the current 3 year low, and sparked the beginning of a bull rally from 350 to 500 in less than 2 years.

I love this example because as you continue to learn about each of these candlestick patterns, you will constantly notice that they stack like this, and you can use your pattern recognition to compound confidence in the pattern.

SPY begins in a downtrend until reaching the 505 psychological level, and prints a massive bullish engulfing on the 5 minute timeframe. 30 minutes later, SPY retraces 61.8% of the initial breakout move, and prints a perfect bullish hammer candle.

While the engulfing alone is a very strong reversal signal, the higher low and hammer add confirmation to the trend reversal that began with the engulfing.