Engulfing patterns are among the most powerful and reliable candlestick reversal signals. They consist of two candles where the second candle completely engulfs the body of the first. These patterns mark significant shifts in market sentiment and can help you catch major trend reversals.
What is an Engulfing Pattern?
An engulfing pattern occurs when a candle's real body completely covers or engulfs the real body of the previous candle. The pattern shows a sudden and complete shift in control from buyers to sellers or vice versa.
Key concept: The engulfing candle must have an opposite color from the previous candle and its body must completely cover the previous candle's body. The shadows do not need to be engulfed, only the real body.
Bullish Engulfing Pattern
A bullish engulfing pattern forms at the bottom of a downtrend. It consists of a small red (bearish) candle followed by a larger green (bullish) candle that completely engulfs the first candle's body.
Bullish Engulfing Requirements
- Must appear after a downtrend
- First candle is red (bearish)
- Second candle is green (bullish)
- Second candle body completely covers first candle body
- Second candle opens below and closes above first candle body
Bullish Engulfing Example
Stock ABC has dropped from $50 to $40 over two weeks.
- Day 1: Red candle opens at $41, closes at $40
- Day 2: Green candle opens at $39.50, closes at $42
- The green candle engulfs the red candle completely
- Signal: Downtrend may be reversing, consider long positions
Bearish Engulfing Pattern
A bearish engulfing pattern forms at the top of an uptrend. It consists of a small green (bullish) candle followed by a larger red (bearish) candle that completely engulfs the first candle's body.
Bearish Engulfing Requirements
- Must appear after an uptrend
- First candle is green (bullish)
- Second candle is red (bearish)
- Second candle body completely covers first candle body
- Second candle opens above and closes below first candle body
Bearish Engulfing Example
Stock XYZ has rallied from $100 to $120 over three weeks.
- Day 1: Green candle opens at $119, closes at $120
- Day 2: Red candle opens at $121, closes at $117
- The red candle engulfs the green candle completely
- Signal: Uptrend may be reversing, consider short positions
Why Engulfing Patterns Work
Engulfing patterns are powerful because they show a complete shift in market control within just two trading sessions:
Bullish Engulfing Psychology
After a downtrend, sellers are in control. The first small red candle continues the selling. But on the second day, buyers overwhelm sellers so completely that they not only reverse the previous day's losses but push prices even higher. This sudden shift often marks the beginning of a new uptrend.
Bearish Engulfing Psychology
After an uptrend, buyers are in control. The first small green candle continues the buying. But on the second day, sellers overwhelm buyers so completely that they not only reverse the previous day's gains but push prices even lower. This sudden shift often marks the beginning of a new downtrend.
How to Trade Engulfing Patterns
Trading Bullish Engulfing
Long Setup
- Entry: Buy when price breaks above the engulfing candle high
- Stop loss: Below the engulfing candle low
- Target: Previous resistance or 2:1 risk-reward ratio
- Position size: Risk no more than 1-2% of account
Trading Bearish Engulfing
Short Setup
- Entry: Short when price breaks below the engulfing candle low
- Stop loss: Above the engulfing candle high
- Target: Previous support or 2:1 risk-reward ratio
- Position size: Risk no more than 1-2% of account
Factors That Strengthen Engulfing Patterns
Not all engulfing patterns are equal. These factors increase reliability:
Size of the Engulfing Candle
A large engulfing candle that not only covers the previous body but extends well beyond it is stronger than one that barely engulfs. The bigger the engulfing candle, the stronger the signal.
Volume Confirmation
High volume on the engulfing candle shows strong conviction. If volume is significantly higher than recent average, the signal is more reliable.
Location on Chart
- Engulfing at major support or resistance levels
- Engulfing at round psychological numbers ($50, $100)
- Engulfing at moving averages (50-day, 200-day)
- Engulfing at Fibonacci retracement levels
Size Comparison
When the first candle is very small (like a doji or spinning top) and the second candle is very large, the pattern is especially powerful because it shows extreme shift in sentiment.
Common Mistakes to Avoid
- No prior trend: Engulfing patterns in sideways markets are less reliable
- Partial engulfing: The second candle must completely cover the first body
- Same color candles: Both candles the same color is not an engulfing pattern
- Ignoring context: Always consider the broader market trend
- No stop loss: Always define your exit before entering
Engulfing Patterns vs Other Reversals
Engulfing vs Piercing/Dark Cloud
Piercing and dark cloud patterns are weaker versions of engulfing patterns. In a piercing pattern, the second candle only covers more than half of the first candle, not all of it. Engulfing patterns are stronger because they show complete reversal.
Engulfing vs Harami
Harami patterns are the opposite of engulfing patterns. In a harami, the second candle is small and contained within the first candle's body. Engulfing patterns are generally more reliable than harami patterns.
Advanced Engulfing Strategies
Multiple Timeframe Analysis
Look for engulfing patterns on the daily chart that align with the weekly trend. A bullish engulfing on the daily chart within a weekly uptrend has higher probability than one against the weekly trend.
Combining with Indicators
- RSI: Bullish engulfing with oversold RSI (below 30) is stronger
- MACD: Engulfing pattern with MACD histogram turning adds confirmation
- Bollinger Bands: Engulfing at the lower band supports bullish signal
Track Your Engulfing Pattern Trades
Pro Trader Dashboard helps you log trades by pattern type and analyze your performance. Discover your win rate on engulfing patterns and refine your strategy with real data.
Summary
Engulfing patterns are powerful two-candle reversal signals that show complete shifts in market control. Bullish engulfing patterns appear at bottoms and signal potential uptrends, while bearish engulfing patterns appear at tops and signal potential downtrends. Look for these patterns at key levels, confirm with volume, and always use proper risk management.
Continue learning with our guides on harami patterns and morning star patterns.