Engulfing Pattern

An engulfing pattern is a candlestick formation used by technical analysts to signal trend reversals. Engulfing candlesticks chart are composed of two candles and can be used for both bullish and bearish reversals, it’s just the setup that’s slightly different in each case.

In a bullish engulfing chart, the first candle is a small downward candle followed by a large upward candle that completely engulfs the previous one. These tend to take place at the bottom of a downtrend where the previous few candles have all sent the price lower.

In a bearish engulfing pattern, the opposite is true. Bearish engulfing patterns tend to take place at the top of upward movements in price action. They are composed of a smaller upward candle followed by a larger downward candle that completely engulfs the previous one.

In each case they show that bearish momentum is picking up in a bullish market or that bullish momentum is picking up in a bearish market.