Engulfing Pattern
A two-candlestick pattern where the second candle's body completely engulfs the prior candle's body, interpreted as a signal that momentum has decisively shifted direction.
An engulfing pattern consists of two consecutive candlesticks, where the second candle's body completely covers, or "engulfs," the entire body of the first candle. A bullish engulfing pattern occurs when a down candle is immediately followed by a larger up candle that engulfs it, interpreted as a signal that buying pressure has decisively overwhelmed the prior selling pressure. A bearish engulfing pattern is the mirror case: an up candle immediately followed by a larger down candle that engulfs it, signaling that selling pressure has decisively overwhelmed prior buying.
An engulfing pattern is generally considered more significant when it forms after a clear, sustained prior trend, since it then represents a meaningful momentum shift against that trend, and when the engulfing candle's body is accompanied by unusually high trading volume, reinforcing that the shift reflects genuine, convicted participation rather than a low-volume anomaly.
Examples
- A bullish engulfing pattern forming at the end of a sustained downtrend, on unusually high volume, is generally considered a more significant reversal signal than the same pattern forming in a quiet, directionless market.
- An engulfing pattern's second candle must completely cover the entire body of the first candle, not merely overlap part of it, to qualify as a genuine engulfing formation.