Billions of dollars are traded daily in financial markets worldwide. Almost anyone with a bit of technical analysis knowledge can buy and sell various assets in this wide global market using just the internet. One of the key things to learn in technical analysis is Japanese candlesticks. Candlesticks are a charting technique used to represent price movements of financial assets like currency exchange rates. Japanese candlesticks are an effective way to understand price movements and identify trends. Among the various candlestick patterns, Engulfing candlesticks stand out as more eye-catching and intriguing in the market.
What is the Engulfing Candle Pattern?
The Engulfing candle pattern is a two-candle trend reversal
pattern. This pattern is one of the clearest and most talked-about patterns on
price charts. It often appears when the market is about to change direction. The
pattern's fundamental concept involves one candle fully covering the body of
the candle before it. When this happens, it shows that one side either buyers
or sellers has gained more strength for that period.
The visibility of this pattern makes it stand out. It does
not require complex tools to be spotted. Observation of the candles reveals
that a new candle sometimes grows large enough to cover the one preceding it.
This is the moment the Engulfing pattern forms. This feature is widely
considered by market observers to be a sign of a possible turn in price
movement. When studying this pattern, it is helpful to also look at where it
appears on the chart. For example, if it forms near an important support or resistance level, it can mean that the market is reacting to that level. If it
appears in the middle of a calm zone, it might not mean much. So, it is better
to check the full picture before making any decision.
Many candlestick readers often wonder, Does the engulfing candle include wicks? The answer is no. The engulfing pattern only looks at the body of the candles, not the thin lines above or below called wicks. While wicks can give extra information about price movements during the period, they do not change whether a candle is considered engulfing or not. Sometimes wicks appear in engulfing candles, but they are not counted.
What is the Meaning of the Engulfing Candlestick Pattern?
The word "engulfing" means to cover something completely, and that is exactly what happens here. The new candle's body is big enough to wrap around the previous candle's body. It looks simple, yet it carries a strong message about the change in market direction. The engulfing candlestick pattern means that a strong change has taken place between buyers and sellers. It shows that one side has gained more power after a period of balance. When a candle completely covers the previous one, it tells us that the new direction could begin soon.
The candle that covers the other one acts as proof that one group has taken control for that time. This is why many people pay attention to it when checking market charts. A bullish engulfing means buyers have successfully pushed the price above the range of the preceding candle, thereby showing strong interest. A bearish engulfing means sellers have driven the price lower than before, establishing control over the move.
Types of Engulfing Candlestick
There are two types of this candlestick pattern:
- Bearish Engulfing candlesticks
- Bullish Engulfing candlesticks
The Engulfing candlestick pattern is a chart pattern
consisting of two candlesticks. Engulfing candlestick patterns are a popular
technical analysis tool for both beginner and experienced traders.
Understanding these patterns can help us better understand market trends and
make smarter trading decisions.
Engulfing Candlestick Patterns
🛈 New traders in the financial markets may sometimes
confuse the Engulfing candlestick pattern with the Harami candlestick pattern.
However, there are some key differences between these two candlestick patterns.
The main difference is the size of the candles. For example, in the Engulfing pattern, the first candle is much smaller
than the second candle, while in the Harami pattern, the opposite is true.
How To Use an Engulfing Pattern?
The Engulfing pattern can be a helpful sign for reading price changes on a chart. To use it well, you need to look at where it forms and what the market is doing before it appears. This pattern alone does not tell the full story, but it can guide you toward a better idea of what might happen next.
When you see an engulfing candle, check if it forms near a support or resistance level.
- If it appears at a support zone after a drop, it may show that buyers are coming back.
- If it appears at a resistance zone after a rise, it may show that sellers are becoming stronger.
You can also look at trend direction. In an uptrend, a Bullish Engulfing may suggest the trend will keep going. In a downtrend, a Bearish Engulfing may show that the drop can continue. It's also smart to wait for the candle to close before making a decision. Sometimes a candle looks like an engulfing one at first but changes shape before closing. Waiting helps you avoid false signals.
Many people also check volume to confirm the move. If the engulfing candle forms with higher volume, it can mean that more people support that direction. In short, use the Engulfing pattern as a guide, not as a command. It works best when you combine it with other tools like trend lines, overbought/oversold zones, and volume.
Bearish Engulfing Candlestick Pattern
The Bearish Engulfing candlestick pattern is a candle pattern on a price chart that can indicate the end of an uptrend or a reversal. This pattern is characterized by a candlestick that follows an upward trend and is then engulfed downward by a subsequent candlestick. The first candle is usually a green or white bullish candle, while the second one appears as a larger red or black bearish candle that completely engulfs the body of the previous bullish candle.
Bearish Engulfing is a
two-candlestick pattern. It is formed when a black or red candle (the second
candle) completely engulfs a white or green candle (the first candle), and its
formation consists of the following steps:
- First Candlestick (Upward): This pattern usually occurs in an uptrend. The first candle is typically a green or white candle and often represents an increase. As prices are generally rising, this candle may have a smaller body.
- Second Candlestick (Downward): The following second candle is a larger red or black candle that engulfs the first candle downward. This candle usually has a larger body and encompasses the entire body of the previous bullish candle.
This situation indicates that the sellers are overwhelming the buyers and that prices may be entering a downtrend. The Bearish Engulfing pattern signals that selling pressure is increasing and that the downtrend may be strengthening.
Bearish Engulfing candlestick is a formation within an uptrend that could indicate the beginning of a downtrend. If the body of the second candle is larger than the body of the first candle, it's interpreted as a stronger signal for a downtrend. So, at the peak of an uptrend, if a large red (black) candle appears, it signals a strong downtrend, whereas a small red (black) candle might indicate a weaker downtrend. Additionally, if a Bearish Engulfing candlestick appears in an overbought zone or at a resistance level, it can result in a more reliable signal.
Bearish Engulfing Trading Strategy
Bearish Engulfing is often seen more prominently in uptrends, and we can think of it as a precursor to a downtrend. When this pattern appears on a price chart, we can open a Short position, taking into account the strength of the current trend and after confirmation with other technical analysis tools.
How to confirm Bearish Engulfing?
To confirm a Bearish Engulfing, see if the red candle completely covers the body of the green one that came before. It often carries more meaning when it appears near a resistance level or after a steady climb in price. If the candle closes near its low and the next ones keep moving down, it supports the idea that sellers are leading.
A rise in volume during the red candle can also add strength to the sign. Waiting for another candle to stay lower helps confirm that the market might keep falling.
Here is an example of trading on the Ethereum/Bitcoin daily chart:
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| Bearish Engulfing Candlestick Pattern in ETH/BTC chart |
- Entry: For a short-term trade, the entry level is typically placed below the low of the second candle. This is because the second candle shows that the bears are in control and that the price is likely to continue to fall.
- Stop Loss: The stop-loss level is typically placed above the high of the candles in which this pattern formed. This is because these candles formed in a bullish trend and there is still a possibility that the price could recover.
- Target: The target level can be determined by each trader according to their strategy. Support levels, Fibonacci retracement levels, moving averages, risk/reward ratio, or other technical indicators can also be used for the target level.
⚠ Remember, it can be risky to trade based on a single candle in financial markets like Forex, where price fluctuations are common. Just like any candlestick pattern, Bearish Engulfing can also produce false signals. Therefore, it is important to not trade based on this pattern alone and to confirm it using other technical analysis tools and indicators as well. Adopting an integrated approach in trading can help you make more solid trading decisions by using multiple confirmation methods instead of making decisions based on a single indicator.
Bullish Engulfing Candlestick Pattern
The Bullish Engulfing candlestick is a candlestick formation that occurs within a downtrend and can indicate the beginning of an uptrend. It's known as a two-candle pattern. The first candle is a black or red candle representing the downtrend. The second candle is a white or green candle that completely or partially engulfs the first candle. This signifies a reversal in the direction of the current trend, either partially or entirely.
The Bullish Engulfing candlestick pattern
is a two-candlestick pattern that indicates the dominance of the bulls. The
first candle shows that the bears are dominant and that the price is likely to
continue to fall. However, the second candle shows that the bulls are dominant
and that the uptrend is likely to begin. This pattern typically occurs in a
downtrend and consists of two consecutive candlesticks:
- First Candlestick (Downward): This pattern generally appears at the end of a downtrend. The first candle usually emerges as a red or black bearish candle, often representing the downward movement. As prices are generally falling, this candle may have a smaller body.
- Second Candlestick (Upward): The subsequent second candle appears as a larger green or white bullish candle that completely engulfs or significantly surpasses the first candle. This second candle encompasses the entire body of the previous bearish candle.
This situation can indicate that buyers have overwhelmed sellers and that prices might experience upward momentum. The Bullish Engulfing pattern could suggest a strengthening uptrend and the end of a downtrend.
The Bullish Engulfing candlestick, when appearing at the end of a downtrend, is interpreted as the beginning of an upward trend. Therefore, this pattern indicates that the downtrend is weakening and that a bullish reversal is possible. While the first bearish candle indicates seller control, the second large bullish candle signifies buyer strength and a possible shift in market direction. The second candle completely engulfing or significantly surpassing the previous bearish candle indicates buyer dominance and possible strengthening of the uptrend. If a large green (white) candle appears at the bottom of a downtrend, it's a strong signal for an upward trend, while a small green (white) candle might indicate a weaker upward trend. Moreover, if a Bullish Engulfing candlestick appears in an oversold zone, it can result in a more reliable signal.
Bullish Engulfing Trading Strategy
When the Bullish Engulfing candlestick pattern is seen in the market, we may consider taking a Long position. Of course, it is important to avoid trading solely based on the Bullish Engulfing pattern. It would be wise to enter a Buy order after confirming this pattern with other technical indicators.
How to confirm Bullish Engulfing?
To confirm a Bullish Engulfing, first make sure the green candle fully covers the body of the red one before it. Then check if it forms near a support zone or after a steady fall in price. If the candle closes close to its high and the next few candles also stay above that level, it adds more trust.
Volume can also be considered. If there is more activity during the green candle, it suggests buyers are becoming stronger. Waiting for the next candle to move upward helps confirm that the market may really be turning.
Take a look at the trading example in the Bitcoin/USD daily chart
below:
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| Bullish Engulfing Candlestick Pattern in BTC/USD chart |
- Entry: The entry level can commonly be either the break above the top of the second (higher) candle, or an entry at a price close to this level. This is because the second candle shows the dominance of the bulls and that the price is likely to continue to rise.
- Stop Loss: The stop-loss level is normally placed below the low of the candles in which the pattern formed. This is because these candles formed in a market where the bears were dominant and that the price is likely to continue to fall.
- Target: Any target can be set using technical analysis tools such as resistance levels, Fibonacci extension levels, or previous peak points. In addition, the classical method is to determine the target level as a distance of twice the length of the body of the second candle.
⚠ Don't forget. Forex is a risky financial market. Like any Japanese candlestick pattern, the Bullish Engulfing pattern is not infallible. Therefore, it is important to confirm the pattern with other technical analysis tools before trading based on a single indicator.
What Timeframe is Best for Engulfing?
The best timeframe for the engulfing pattern depends on what
kind of price moves you want to study. This pattern can appear on any chart,
from one minute to one day, but its meaning can change based on the time you
choose. If you look at short time frames like 1-minute or 5-minute charts, you
will see many engulfing patterns forming all the time. These can be useful for
quick trades, but they also bring more noise and false signals. The market
moves fast on these charts, and what looks clear for one minute might change in
the next.
For a more stable view, many traders prefer 4-hour or daily
charts. On these time frames, each candle shows more price data, and the Engulfing pattern carries more weight. It helps filter out random moves and
gives a cleaner picture of the overall trend. Some people also check multiple
time frames together. For example, they may spot an engulfing pattern on the
4-hour chart and then zoom in to the 1-hour chart to find a better entry point.
This method helps confirm the idea before taking action.
In simple terms:
- Short time frames (1m–15m): More patterns, but less reliable.
- Medium time frames (1h–4h): A good balance between detail and stability.
- Long time frames (daily–weekly): Fewer signals, but often stronger ones.
In the end, the best timeframe is the one that matches your
own plan and patience. If you like slow and clear price action, higher time
frames will suit you better. If you prefer fast moves and short trades, lower
time frames can work too. What matters most is understanding how the engulfing
pattern behaves in the time frame you use.
How Powerful is the Engulfing Candle?
The Engulfing candle can be quite strong, but its power depends on where and when it forms. When it appears at a key level, it can mark a clear change in direction. On higher time frames, it often has more weight because it shows more trading data in one candle. Still, the pattern is not magic. Sometimes it gives good results, and other times it fails. What makes it powerful is not just the shape of the candle but how it fits into the full chart picture.
The pattern can be thought of as a message from the market. When one candle fully covers another, it indicates that a strong side has stepped in. However, the message only makes sense when it is read together with other signs on the chart.
Is Engulfing Strategy Good?
The engulfing strategy can be good if you use it with patience and a clear plan. It's simple to learn and easy to spot, which makes it popular among many people who study charts. Its main strength is clarity. The pattern clearly shows when one side has taken control for that period. However, relying on it alone can lead to mistakes. Success is maximized when the pattern is corroborated by other checks, such as support and resistance, trend direction, and candle closing. By adhering to clear rules, managing risk, and exercising patience, the engulfing strategy can aid in making sound choices. It is not perfect, but it can be a useful component of a simple trading plan.
Just so you know: This content is for learning purposes only and not a piece of investment advice. Take time to study the market and know the risks before making any financial move.