One of the most effective things I see in technical analysis is the engulfing bullish pattern. This pattern is a strong signal indicating that the market has changed direction after a downtrend.

To explain how the engulfing bullish pattern forms, we're talking about a combination of two candles. The first candle is red (downward), and the second candle is green (upward), and this green candle completely engulfs the previous downward candle. That is, the body of the second candle must be larger than the first.

There are three conditions for this pattern to be considered valid. First, there must be a clear downtrend before the pattern. Second, the body of the second candle must be wider than the first candle. Third, the second candle must be green or white, meaning it must show an upward movement.

We can see this very clearly on the hourly chart of XAUUSD. After the downtrend, an engulfing bullish pattern forms, and the green candle completely engulfs the previous four-hour red candle. Such patterns usually indicate the beginning of a trend reversal.

An interesting point is that the trend reversal signal is not limited to a single pattern. Other patterns like the hammer and inverted hammer can also appear in succession. This increases the reliability of the engulfing bullish pattern. In short, this pattern, especially when seen after a downtrend, is a good indicator that the market may start to recover.