Japanese Candlestick Analysis
figure 14.35 A Bullish Engulfing Formation.bullish engulfingDescription:■ (^) The bullish engulfing formation is a double candlestick reversal pattern. See
Figure 14.35.
■ (^) The first candlestick should be a bearish candlestick followed by a larger bull-
ish candlestick. The second candlestick gaps down below the close of the first
candlestick and subsequently reverses back up and closes above the high of
the first candlestick.
■ (^) The upper and lower shadows are not significant.
■ (^) It is best found in a protracted downtrend that is beginning to display weakness.
■ (^) Its corresponding bearish version is the bearish engulfing.
Psychology:
■ (^) The bullish engulfing formation is extremely bullish. It depicts a clear turn-
around in bearish price action after gapping down aggressively. The buyers
drive prices all the way up to above the high of the first candlestick, making it
very clear who is in control.
Trigger, Stoploss, and Confirmation:
■ (^) The trigger is at the high of the second candlestick.
■ (^) To confirm the reversal, price needs to close above this trigger level.