In trading, an Engulfing candle (or Engulfing pattern) is a two-candle reversal pattern that can indicate a potential change in market direction. It is commonly used in technical analysis in both bullish and bearish contexts.
Types of Engulfing Candles
1. Bullish Engulfing Pattern:
Occurs during a downtrend.
The first candle is bearish (red or black), showing continued selling pressure.
The second candle is bullish (green or white) and completely engulfs the body of the first candle (its open is lower and close is higher).
This pattern signals a potential reversal to the upside.
2. Bearish Engulfing Pattern:
Occurs during an uptrend.
The first candle is bullish.
The second candle is bearish and completely engulfs the first candle's body (its open is higher and close is lower).
This pattern signals a potential reversal to the downside.
Key Characteristics
The second candle’s body must fully engulf the first candle’s body (wicks/tails are not necessary to engulf).
The stronger the engulfing candle (in terms of size and volume), the more significant the signal may be.
Often more reliable when confirmed with volume or used in conjunction with other technical indicators (e.g., RSI, support/resistance levels).
Example:
Bullish Engulfing Example:
Day 1: Bearish candle opens at $100 and closes at $95.
Day 2: Bullish candle opens at $94 and closes at $101 — it completely engulfs Day 1's body.
This would suggest a potential shift from sellers to buyers.
Types of Engulfing Candles
1. Bullish Engulfing Pattern:
Occurs during a downtrend.
The first candle is bearish (red or black), showing continued selling pressure.
The second candle is bullish (green or white) and completely engulfs the body of the first candle (its open is lower and close is higher).
This pattern signals a potential reversal to the upside.
2. Bearish Engulfing Pattern:
Occurs during an uptrend.
The first candle is bullish.
The second candle is bearish and completely engulfs the first candle's body (its open is higher and close is lower).
This pattern signals a potential reversal to the downside.
Key Characteristics
The second candle’s body must fully engulf the first candle’s body (wicks/tails are not necessary to engulf).
The stronger the engulfing candle (in terms of size and volume), the more significant the signal may be.
Often more reliable when confirmed with volume or used in conjunction with other technical indicators (e.g., RSI, support/resistance levels).
Example:
Bullish Engulfing Example:
Day 1: Bearish candle opens at $100 and closes at $95.
Day 2: Bullish candle opens at $94 and closes at $101 — it completely engulfs Day 1's body.
This would suggest a potential shift from sellers to buyers.
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Join My Telegram Channel For Getting Free Signals and Analysis 👇👇
t.me/fxinsighthub7
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.