What is Engulfing Candlestick Pattern: Bullish and Bearish Engulfing

Engulfing Candlestick Pattern: Bullish & Bearish Explained

The Engulfing Candlestick Pattern is a popular price action pattern used by traders to identify potential market reversals. It consists of two candles where the second one completely engulfs the body of the previous candle, signaling a strong shift in momentum.

What is an Engulfing Pattern?

An Engulfing pattern occurs when a larger candle (real body) fully covers or “engulfs” the prior smaller candle. It’s a sign that buyers or sellers have taken control. This pattern can be either bullish or bearish depending on the trend direction and candle colors.

Types of Engulfing Patterns

1. Bullish Engulfing Pattern

This pattern typically forms at the bottom of a downtrend. The first candle is bearish (red), and the second is a large bullish candle (green) that opens lower and closes above the previous candle’s high.

Key signals:

• Appears after a downtrend
• Indicates a potential bullish reversal
• Volume confirmation strengthens the signal

2. Bearish Engulfing Pattern

This pattern forms at the top of an uptrend. The first candle is bullish (green), followed by a larger bearish candle (red) that opens higher and closes below the previous candle’s low.

Key signals:

• Appears after an uptrend
• Signals potential bearish reversal
• Effective near resistance levels

Engulfing Pattern Chart Example

Below is a visual representation of both Bullish and Bearish Engulfing patterns:

Trading Strategy Using Engulfing Patterns

1. Identify the trend: Use moving averages or trendlines.
2. Spot the engulfing pattern at key levels (support/resistance).
3. Wait for confirmation with the next candle or increased volume.
4. Use stop-loss below/above the pattern low/high.
5. Target recent swing highs/lows or use risk-reward ratio (e.g., 1:2).

Tips for Trading Engulfing Patterns

• Combine with indicators like RSI, MACD for confirmation.
• Stronger when pattern appears on daily or higher timeframes.
• Avoid in sideways markets — use in trending conditions.

Conclusion

The Engulfing pattern is a reliable reversal indicator when used correctly. It shows a shift in control between buyers and sellers. Always use confirmation signals and risk management for better trading decisions.