what does a bullish engulfing pattern tell you 
a bullish engulfing pattern is not to be interpreted as simply a white candlestick representing upward price movement following a black candlestick representing downward price movement for a bullish engulfing pattern to form the stock must open at a lower price on day 2 than it closed at on day 1 if the price did not gap down the body of the white candlestick would not have a chance to engulf the body of the previous day s black candlestick because the stock both opens lower than it closed on day 1 and closes higher than it opened on day 1 the white candlestick in a bullish engulfing pattern represents a day in which bears controlled the price of the stock in the morning only to have bulls decisively take over by the end of the day the white candlestick of a bullish engulfing pattern typically has a small upper wick if any that means the stock closed at or near its highest price suggesting that the day ended while the price was still surging upward this lack of an upper wick makes it more likely that the next day will produce another white candlestick that will close higher than the bullish engulfing pattern closed though it s also possible that the next day will produce a black candlestick after gapping up at the opening because bullish engulfing patterns tend to signify trend reversals analysts pay particular attention to them bullish engulfing pattern vs bearish engulfing patternthese two patterns are opposites of one another a bearish engulfing pattern occurs after a price moves higher and indicates lower prices to come here the first candle in the two candle pattern is an up candle the second candle is a larger down candle with a real body that fully engulfs the smaller up candle example of a bullish engulfing patternas a historical example let s consider philip morris pm stock the company s shares were a great long in 2011 and remained in an uptrend in 2012 though the stock was retreating on january 13 2012 a bullish engulfing pattern occurred the price jumped from an open of 76 22 to close out the day at 77 32 1 this bullish day dwarfed the prior day s intraday range where the stock finished down marginally the move showed that the bulls were still alive and another wave in the uptrend could occur bullish engulfing candle reversalsinvestors should look not only to the two candlesticks which form the bullish engulfing pattern but also to the preceding candlesticks this larger context will give a clearer picture of whether the bullish engulfing pattern marks a true trend reversal bullish engulfing patterns are more likely to signal reversals when they are preceded by four or more black candlesticks the more preceding black candlesticks the bullish engulfing candle engulfs the greater the chance a trend reversal is forming confirmed by a second white candlestick closing higher than the bullish engulfing candle acting on a bullish engulfing patternultimately traders want to know whether a bullish engulfing pattern represents a change of sentiment which means it may be a good time to buy if volume increases along with price aggressive traders may choose to buy near the end of the day of the bullish engulfing candle anticipating continuing upward movement the following day more conservative traders may wait until the following day trading potential gains for greater certainty that a trend reversal has begun limitations of using engulfing patternsa bullish engulfing pattern can be a powerful signal especially when combined with the current trend however they are not bullet proof engulfing patterns are most useful following a clean downward price move as the pattern clearly shows the shift in momentum to the upside if the price action is choppy even if the price is rising overall the significance of the engulfing pattern is diminished since it is a fairly common signal the engulfing or second candle may also be huge this can leave a trader with a very large stop loss if they opt to trade the pattern the potential reward from the trade may not justify the risk establishing the potential reward can also be difficult with engulfing patterns as candlesticks don t provide a price target instead traders will need to use other methods such as indicators or trend analysis for selecting a price target or determining when to get out of a profitable trade 