Study and trading with Bullish engulfing patternBullish Engulfing pattern suggests the arrival of increment in prices of the stock.It is a two candlestick pattern with first candle to be a bearish candle while second candle is a long Bullish candle having length greater than first candle having length greater than first candle and which completely eclipses or engulfs the first candle without the regards to length of tail or shadows of the candle.This apprehends that the second candle of the pattern have it's opening price below the close of first candle while the closing price of bullish greeen candle to be above of the opening point of first candle.
In this pattern , first candle can be a Doji while the second candle can be replaced by a Marubozu candlestick also.
This pattern is just opposite of Bearish Engulfing candlestick pattern . It recommends you to buy the stocks while bearish engulfing patern suggests you to sell( stock, currency or any other currency also)the current position.
Studying the Bullish engulfing patternIt is preferable if the Bullish candlestick of the pattern has a long real body with a small upper shadow.As the body length is long, it signifies that the price has been taken significantly above the opening price and the short wick suggests that there is not much difference between closing and highest price of session which makes it more likely to have the next candle to be a green Bullish candle.
One more thing to take note is that more are the preceding red candlesticks before the pattern, more is the chance of trend reversal. Bullish engulfing pattern becomes more significant and likely to show trend reversals if preceded by 4 or more red/black candlesticks.
Trading or working with Bullish engulfing patternYou are always adviced to never make a trade solely based on candlestick pattern. Though, if you decide to trade by observig any pattern you should look for any other signal or indicator as a confirmation.
If the candle next to the Bullish engulfing pattern opens Gapped-up , it is a very good sign for the pattern . As a Bullish candlestick pattern, you should consider it as a reversal pattern only if it appears during a clear uptrend ,otherwise it can just be a continuation pattern. It is not of much significance during a choppy market .
Stop-loss - Talking about the stop loss than it can be placed at the bottom point of the first candle of pattern.Though ,it is totally up to you about what amount of risk you can take and thus put the stop-loss.