The bullish engulfing candle indicates that the Bulls are momentarily in control of the price action. Most traders, however, take this as an indicator to open a buying position, but they often get stopped in their loss because they use the bullish engulfing candle as the sole signal for entry. To ensure that you only open profitable positions using the bullish engulfing candlestick pattern, it is important to follow a reliable strategy such as the MAEE formula.
The MAEE formula is a simple strategy that will help you successfully trade the bullish engulfing trading pattern. MAEE is an acronym that stands for:
Area of value
- Market structure
Before opening any position, you have to identify the current market structure. This means that you have to identify whether the market is in a down trend, up trend, or range. It will make it easier for you to know who, between the bulls and the bears, are in control of the price action, and whether a reversal is imminent.
- Area of value
After identifying the market structure, you will then identify the area of value, i.e. the area where potential buying or selling pressure could step in. this area of value can be identified using channels, moving averages, trendlines, or support and resistance lines.
- Entry trigger
Once you have your area of value, you will need a valid entry trigger to open a position. This is where candlestick patterns such as the bullish engulfing candlestick pattern become useful because they tell you who is currently in control. The bullish engulfing candle, for instance, tells you that the bulls are in control.
Finally, as with every trade, you must decide where you are going to exit the trade if the price moves in your favor, or against you. This means that you must set up your stop loss and target profit.
Using the bullish engulfing candlestick pattern to catch bottoms with precision
While the bullish engulfing candle is used as an entry trigger for buyers, it can also be used to alert you of potential reversal trading opportunities. The bullish engulfing pattern indicates that the bulls are momentarily in control. So, when you see a bullish engulfing pattern in a higher timeframe such as the weekly timeframe and it is leaning against a valid area of value such as a support line, this could be an indication that the market is about to reverse higher.
If you are not trading on a weekly timeframe because the stop loss is higher than you are willing to risk, you can go back to a lower timeframe and time your entry. Trading the bullish engulfing candlestick pattern is all about proper timing and you must always look out for a strong momentum coming into support and a strong price rejection.
When trading reversals, a strong momentum is indicated by a candle that is big and bold. However, it is always important to keep the MAEE formula in mind and be on the lookout for the area of value before opening any positions.