Engulfing

Engulfing candles tend to signal a reversal of the current trend in the market. This specific pattern involves two candles with the latter candle ‘engulfing’ the entire body of the candle before it. The engulfing candle can be bullish or bearish depending on where it forms in relation to the existing trend.

The bullish engulfing candle appears at the bottom of a downtrend and indicates a surge in buying pressure. The bullish engulfing pattern often triggers a reversal in trend as more buyers enter the market to drive prices up further. The pattern involves two candles with the second candle completely engulfing the body of the previous red candle.

The bearish engulfing candle appears at the top of an uptrend and indicates a selling pressure. The bearish engulfing pattern often triggers a reversal in trend as more seller enter the market to drive prices down further. The pattern involves two candles with the second candle completely engulfing the body of the previous Green candle.

Ideally, both candles are of substantial size relative to the price bars around them. Two very small bars may create an engulfing pattern, but it is far less significant than if both candles are large.