Share Market Knowledge: If you see these signals in a falling stock, then understand that the bulls have entered, invest money, print notes.

Stock Market Knowledge: As attractive as the stock market looks from outside, it becomes more difficult once you enter inside. This is the reason why most of the small investors and traders lose money in the market, while only 5-10 percent people make profit. So the question arises that what are the things that people who earn money in the share market look at when they invest? Anyone can earn money if they know this. One way to know about the possible movement of the stock market or any share is technical analysis. Today we are telling you about an important thing in this analysis, which can indicate about the movement of the stock.

Today the important thing related to technical analysis that we are talking about is a candlestick pattern. The name of this pattern is Bullish Engulfing. It is clear from the name itself that this is a bullish pattern. To find this you must know how to read charge. These days all brokers offer charting option in Demat account. You can search for this pattern on the same app or its desktop version. Apart from this, some special apps are used only for charting, such as investing.com and tradingview.com.

How is this bullish engulfing pattern formed?
Here an attempt has been made to explain it to you in the simplest language possible. First of all, separate these two words. Bullish + Engulfing. You already know the meaning of Bullish, Ingulf means to swallow. Look at the pattern shown in the picture below.

A stock is falling. Many red (more) and green (less) candles are seen being formed. Now, look at the green candle marked in the circle. This candle has completely swallowed or covered the previous day’s candle. This is the engulfing candle. Bullish Engulfing Pattern is formed by combining a small red candle and then a green candle that completely covers it.

According to Zerodha Versity, in this pattern we have to see 2 trading sessions simultaneously. You will first see a small red candle and the next day a large green candle. The green candle is covering the previous red candle.

Which pattern will work best?
Suppose you watch a stock regularly, and one day you see a bullish engulfing pattern on the chart. From here you should understand that now the share price can reverse. Keep in mind here that these patterns are not 100 percent effective. These patterns indicate the possibility of a price reversal. A good investor remains in alert mode after finding such patterns.

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Such patterns keep forming at many places on the chart. Many times the share price is going up slowly and this pattern is formed in it. Sometimes this pattern is formed even when the stock is at its high. But these patterns usually don’t work. The bullish engulfing pattern is more likely to work when it forms after a prolonged downtrend in the charts. Meaning, one should not rely too much on the pattern formed in the middle of the chart. Seeing this pattern formed in the chart after a long decline, one should understand that the price may reverse.

Logic behind Bullish Engulfing Pattern
When a stock is falling, it is said that it is in the grip of bears and they are continuously taking the price down. In such a situation, you will see more red colored candles. Small green colored candles will also be visible in between. There comes a time when the bulls feel that the price has fallen significantly and hence they can buy from here. When bulls start buying, their movements become visible in big green candles. Where many bulls simultaneously feel that the stock should be bought, then they start buying in abundance and bigger and green candles start forming. Additionally, the volume bars seen below also start becoming higher than normal.

A bullish engulfing candle is formed on a day when the opening price is lower than the previous day’s opening, but by the time the price closes, it is higher than the previous day’s opening. For example, yesterday a share closed at Rs 100, but opened at Rs 105. Meaning it closed down by Rs 5. Today the same share opened at Rs 98 (Rs 2 below yesterday’s closing price). Here the bulls came and started buying, and by the time the market closed they took it to Rs 110. Meaning, by clearing the entire decline, the Bulls tried to show that they have arrived and will no longer allow the Bears to continue.

To find such candles, you should look at the chart with daily candles (one candle a day). You can also view weekly or monthly charts, but charts with candles of less than 1 day should not be viewed. Note again that the formation of a bullish engulfing candle pattern does not mean that the price will reverse from there. This is an indicator, whereas the investment decision is taken only after considering some other things along with it. If you are not proficient in technical analysis, you should consult a registered investment advisor.

(Disclaimer: This article has been written for informational purposes only. If you want to invest money in any stock, then first consult a certified investment advisor. News18 will not be responsible for your profit or loss.)

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