This pattern is characterized by a large white body engulfing a preceding smaller black body which appears during a downtrend. The white body does not necessarily engulf the shadows of the black body but totally engulfs the body itself. This is an important bottom reversal signal.
1. The market is characterized by a prevailing downtrend.
2. A black body is observed on the first day.
3. The white body that is formed on the second day completely engulfs the black body of the preceding day.
Pattern Requirements and Flexibility
The length of the first black candlestick in Bullish Engulfing is not important. It can even be a Doji. However the second one has to be a normal or long white candlestick. Either the body tops or the body bottoms of the two candlesticks may be at the same level but in any case the white body should be longer than the previous black body.