Engulfing Patterns

An engulfing pattern is a two candle reversal pattern in which the second candle's body completely covers, or engulfs, the body of the first candle in the opposite direction. A bullish engulfing pattern appears after a decline: a small red candle followed by a larger green candle. A bearish engulfing pattern appears after a rise: a small green candle followed by a larger red candle. Engulfing patterns are among the most widely watched candlestick signals.

Anatomy#

Some traders require the second candle to engulf the entire first candle, wicks included, for a stronger signal. In 24 hour markets like crypto and forex, where candles open at the previous close, the "gap" requirement is relaxed and only the bodies are compared.

What it tells you#

In a bullish engulfing, sellers were in control during the first candle, but buyers overwhelmed them in the second, closing above where the first candle opened. The shift in control is sharp and visible. The bearish version shows the reverse.

What makes an engulfing pattern stronger#

• Location: at support (bullish) or resistance (bearish), or after an extended move.
• Trend alignment: a bullish engulfing at the end of a pullback in an uptrend is more reliable than one against a strong downtrend.
• Size: the larger the second candle relative to the first and to recent candles, the stronger.
• Volume: higher volume on the engulfing candle.
• Engulfing several candles: a second candle that engulfs the bodies of several prior candles shows an even sharper shift.

Trading the pattern#

1. Identify the pattern after a clear move into a level.
2. Entry: at the close of the engulfing candle, on a break of its high (bullish) or low (bearish), or on a pullback into its body.
3. Stop: below the low of the pattern for bullish, above the high for bearish.
4. Target: the next resistance or support; make sure the reward justifies the risk, since engulfing candles can be large.

Related patterns#

• Piercing pattern and dark cloud cover: similar, but the second candle only closes past the middle of the first, not beyond it. See Piercing Pattern and Dark Cloud Cover.
• Harami: the opposite shape, where a small second candle sits inside the first. See Harami.
• Outside bar: a Western term for a candle whose range engulfs the previous one, regardless of colour.

Common mistakes#

• Trading engulfing patterns in the middle of ranges, where they are frequent and meaningless.
• Ignoring the trend: counter trend engulfing patterns fail often.
• Using a stop that is too tight inside the pattern.

Frequently asked questions#

What is a bullish engulfing pattern?#

A two candle pattern after a decline where a larger green candle's body completely covers the previous red candle's body, signalling buyers have taken control.

How reliable are engulfing patterns?#

They are more reliable at key levels, in the direction of the larger trend and on higher timeframes. Alone, they are moderate signals.

Do wicks need to be engulfed too?#

Not usually; most definitions compare bodies. Engulfing the full range including wicks is considered a stronger version.

Next, learn a three candle reversal pattern: Morning Star and Evening Star.