Introduction

If the Hammer is a “warning shot,” the Bullish Engulfing pattern is the heavy artillery.

This two-candle pattern is one of the most reliable signals in technical analysis because it doesn’t just show rejection—it shows dominance. It tells you that in a single session, the buyers have completely erased the previous session’s selling pressure.

How to Identify It

This pattern requires two candles:

1. Candle 1 (Bearish): A small Red candle that continues the current downtrend.
2. Candle 2 (Bullish): A large Green candle that opens lower than the previous close, but rallies to close higher than the previous open.
3. The Rule: The body of the Green candle must completely “engulf” (cover) the body of the Red candle.

The Psychology

• The Trap: The second day opens with a “gap down,” tricking sellers into thinking the crash is continuing.
• The Ambush: Buyers step in aggressively. They drive the price up so hard that they not only fill the gap but push past the previous day’s opening price.
• The Shift: Sentiment has flipped 180 degrees from bearish to bullish in one session.

Trading Strategy

• Volume: This pattern is 3x more effective if the Green candle has higher volume than the Red candle.
• Entry: You can often enter near the close of the Green candle (since momentum is so strong) or wait for a slight pullback the next morning.
• Stop Loss: Below the low of the Green candle.