Bullish and Bearish Engulfing Patterns Strategy

  • Bullish and bearish engulfing candlestick patterns signals a reversal of the prevailing trend.
  • If you see a bar has higher highs and higher lows compared to the previous bar, it is an outside bar. 
  • If the closing price is lower than the opening price, then it is a BEOB – Bearish Outside Bars
  • If the closing price is higher than the opening price, you guessed it right, it is a BUOB – Bullish Outside Bars.
  • In the figure, we can see a large bearish candlestick has engulfed the previous, smaller, bullish candlestick. By definition, it is a Bearish Outside Bar (BEOB).
  •  If you have placed a sell stop order few pips below the low of the BEOB candlestick and targeted the next pivot zone, it would have turned out to be a winning trade with a decent reward to risk ratio.

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