Bullish Engulfing Trading Strategy: the entry setup
BUY STOP LIMIT (entry) - a few cents higher than the highest price of the second candle forming the engulfing pattern.
STOPLOSS (exit at market price) - either just below the lowest price of the second candle, or below the lowest price of the first candle forming the bullish engulfing pattern.
Tip: Which Order to Use when Buying Shares?
An example setup can be found on the chart below:
A few more points to consider
Not every bullish or bearish engulfing pattern will be successful! Good risk and trade management is at least as important to be successful in the long term. A few things you can consider to increase your success rate:
- Only use the patterns in the direction of the existing long-term trend. For that long-term trend you can use, for example, the popular 200-day average. If the share price is below this average, the general trend is downwards. If the price is above the 200-day simple moving average, the trend is upward.
- Within this long-term trend, look for interim trend movements that are opposite to the main trend. Suppose, for example, that share X is in a declining long-term trend and there is a short-term upward trend in the meantime. A bearish engulfing pattern that occurs within this shorter upward trend is more likely to succeed.
- Signals are even more powerful when the pattern occurs at a significant level of support or resistance. A good example is a bullish engulfing pattern that occurs during a re-test of a previous support level. In this way, the pattern is combined with another known technical pattern indicating a possible trend reversal, namely a double bottom.
- always check in advance whether any important news comes out for the company in the next few days, as this can trigger a strong reaction to the share price (greatly increased volatility). It often happens that such news causes the price to open a whole lot higher or lower the next trading day (gaps). This can cause the opening price to be a lot lower or higher (in case of a short position) than your current stoploss!
Bullish Engulfing Pattern Stock Screener.
Filtering stocks based on candlestick patterns can be done in the stock screening section under the tab indicators. You'll not only find the engulfing pattern there, but also numerous other popular candlestick patterns.
Find all Bullish Engulfing Patterns on the US markets today
The ChartMill Team