Bullish Engulfing

Definition

• Appears at the bottom of downtrend.
• 1st day - red candle (P1), 2nd day - blue candle (P2) engulfing the 1st candle.
• Engulfing is when the body of the blue candle is big enough to cover the body of red candle.
• If the shadows of red candle are also engulfed by the shadows of blue candle then the patter is stronger.

Inference

• 1st day the market took another drop (P1) from prior trend.
• 2nd day the bulls saw the market too low, they started buying and were successful to draw prices higher.
• The success of bulls more than compensates the drop in prices from last day.

Action

• Suggested buy price near P2. (risk taker) (better option)
• Stop loss is min(P1,P2).
• Risk averse can wait for another day to see a blue candle before initiating the trade.

Bearish Engulfing

Definition

• Appears at the top of an uptrend.
• 1st day - blue candle (P1), 2nd day - red candle (P2) engulfing the 1st candle.
• Engulfing is when the body of the red candle is big enough to cover the body of blue candle.