An engulfing bullish pattern is created when a bearish small black or red body candle happens on a chart and then the following candle has a large bullish white or green candlestick body that has both a higher high and a lower low.
This pattern shows that the lows of the previous day were lost but did not break out to the downside. The bullish candle shows both a rejection of lower lows and that there are buyers above the previous day’s high and are willing to bid the market up and hold the price into the close on the daily chart.
The bullish engulfing pattern visually shows a change of sentiment from an initial bearish gap down in the morning, to strong bullish buying into that weakness that allows the price to stay strong and close near the high price of the current day and also break above the previous day’s high. This candle can be a warning to short sellers that they may need to reevaluate their position as buyers have taken control of the price action.
While this pattern can have meaning on multiple timeframes it is most commonly used on the daily chart.
This is a bullish reversal pattern during the end of a downtrend in price.
When the engulfing candle happens near a short-term support price on a chart it can signal a potential reversal and be a bullish buy signal.