The term ‘engulf’ means to sweep over something, to cover it completely, or to surround it. Using this logic, a bullish engulfing pattern is a pattern that consists of one candlestick covering (engulfing) another. The bullish engulfing candlestick pattern in a bullish trend reversal when preceded by a cluster of red or black candlesticks showing a bearish trend. The bullish engulfing candle indicates the beginning of a new uptrend because the bullish green or white candle body completely covers over (engulfs) the previous red or black candle stick.

The two candlesticks that make up the bullish engulfing candlestick pattern occur after a down-trend. You can identify the bullish engulfing candlestick pattern by pointing out the bearish candlestick which is covered by one bullish candlestick.

To be clear, here are a bullish candlestick pattern’s characteristics:

1. A downtrend must be in progress.
2. A bearish candlestick (black or red) must be at the bottom of the downtrend.
3. A bullish candlestick (white or green) must come after the bearish candlestick and completely cover it.
4. The top of the bullish candlestick must be above the bearish candlestick’s top, and the bottom of the bullish candlestick must be below the bearish candlestick’s bottom.

The bullish engulfing candle tells a diligent trader a few things:

1. The bears were in control but they cannot take the price very far before the bulls take command.
2. The bulls are in control of the price action and there can be a reversal in the downtrend but confirmation is necessary.

When studying the chart, a trader can tell whether the bullish engulfing candlestick pattern will be effective because the downtrend is long and significant. Please note that the longer the bullish engulfing candle body is, the stronger the bullish engulfing candlestick pattern becomes.

Traders aim to capitalize on new trends when the market changes directions. A reversal pattern like the bullish engulfing pattern is a clear signal that there is a change in price dimension, and the previously dominant bearish trend is starting to lose momentum, giving the bulls a chance to capitalize.

Like with other patterns, the bullish engulfing pattern also has limitations. This bullish engulfing pattern is very powerful when it occurs at the end of a very strong trend, but when it appears at the end of a choppy trend, it is safer to restrain yourself from opening a position without full clarity.

With a clear bullish engulfing pattern that signals a reversal in price action, this means that traders can open positions and buy because the downtrend might be finished. The new up-trend may last for a few hours or days, and during this time, buying positions are bound to make a huge profit.

As with every pattern, the bullish engulfing candlestick pattern also tells traders with already open positions that it is time to close their position and wait for the next best trade entry. Although most traders tend to exit positions earlier, this is the best time to exit a position without making huge losses.