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To evaluate the performance of the pattern in your stock exchange within the context of other global markets, please refer to the table below. Locate your stock market to see its ranking among others. This will provide insights into the pattern’s strength and reliability, aiding you in your buying and selling decisions.
BULLISH ENGULFING
Definition
This pattern is characterized by a large white body engulfing a preceding smaller black body, which typically occurs during a downtrend. The white body does not necessarily engulf the shadows of the black body but completely engulfs the body itself. This is an important bottom reversal signal.
Recognition Criteria
1. The market is currently defined by a dominant downward trend.
2. On the first day, a black candlestick is observed.
3. The white candlestick formed on the second day completely engulfs the black candlestick from the previous day.
Pattern Requirements and Flexibility
The length of the initial black candlestick in a Bullish Engulfing pattern is not crucial and can even be a Doji. However, the second candlestick must be a normal or long white candlestick. The tops or bottoms of the two candlestick bodies may align, but the white body should always be longer than the previous black body.
Trader’s Behavior
While the market is characterized by a downtrend, lower volume of selling is observed with the occurrence of a black body on the first day. The next day, the market opens at new lows. It looks as if there’s going to be more bearish trading, however the downtrend loses momentum and the bulls take the lead during the day. The buying pressure overcomes selling and finally the market closes above the open of the previous day. The downtrend is damaged.
Buy/Stop-Loss Levels
The confirmation level is established at the last closing price. For confirmation, prices must exceed this level.
The stop-loss level is set at the last low. After a BUY signal, the stop-loss is triggered if prices decline instead of rising and either close below the stop-loss level or record two consecutive daily lows below it, without any bearish pattern being detected.