The bullish engulfing pattern comprises of
- Two candles (black then white).
- Occurs at bottom of a downtrend.
- Second candle has to engulf the first candle (body only).
Now, in terms of our example, we can see that the market has a downtrend happening right here. So, the actual size of the downtrend is not really relevant. But what is relevant is the fact that it is a downtrend. So, we have a long white candle and the prior black candle. The white candle engulfs the body of the black candle, therefore it qualifies as a reversal pattern, called the bullish engulfing pattern. As you can see, from this point, the market continues to go in an upward direction. One thing you need to bear in mind is that you do not place a buy every time you see this pattern, because it occurs quite frequently, and additional confirmation is required for you to take that trade.