What Is Engulfing Pattern?
A Bullish Engulfing pattern forms in a downtrend: a small red (bearish) candle followed by a larger green (bullish) candle whose body fully engulfs the previous candle's body. Sellers were overpowered by aggressive buyers.
A Bearish Engulfing is the mirror image: small green candle followed by a larger red candle whose body fully engulfs the previous green body. Buyers were overpowered by aggressive sellers.
The pattern is more reliable when: the engulfing candle has significantly more volume than the previous candle, the engulfing happens at a key support/resistance level, and the engulfing candle's range is substantially larger than recent candles.
Reality check: Engulfing patterns are common on intraday charts where they fire constantly with little predictive value. They're meaningful on daily/weekly charts at structural levels.
Related terms
- Hammer Candlestick — A bullish reversal candle with a small body and long lower wick, appearing at the bottom of declines.
- Doji Candlestick — A candlestick where open and close are nearly equal — indicates indecision in the market.
- Candlestick Chart — Price chart format where each candle shows open, high, low, and close for a period.