What it means
A bullish engulfing is a bullish candle whose body completely covers the previous bearish candle's body. A bearish engulfing is the reverse.
Some definitions only require the bodies to engulf; wicks are ignored.
Why traders use it
The second candle shows a full reversal of control within one period. At a key level after a move, it is one of the clearer single-candle shifts.
Chart examples
Bullish engulfing after a decline
Bearish engulfing after a rally
How to identify it objectively
- 1Candle 1: opposite colour to candle 2.
- 2Candle 2's body covers candle 1's entire body.
- 3Preferably after a move into a level.
- 4Bigger candle 2 relative to recent candles = stronger.
Bullish use
- 1Decline into support.
- 2Bullish candle engulfs the last bearish body.
- 3Enter on its close or the next candle; stop below its low.
Bearish use
- 1Rally into resistance.
- 2Bearish candle engulfs the last bullish body.
- 3Enter on its close; stop above its high.
What confirms it
- Location at a level.
- Follow-through on the next candle.
- Higher-timeframe agreement.
What invalidates it
- Price closes back beyond the engulfing candle's far end.
How a hypothetical setup is built
Entry
On the engulfing close.
Stop
Beyond the engulfing candle's extreme.
Target
The previous swing high or low.
A hypothetical illustration of how the concept is turned into a plan, not a recommendation. Practise it on a paper account first.
Related concepts
- Candlestick PatternsHarami and Harami Cross
- Candlestick PatternsMorning Star and Evening Star
- Fair Value Gaps & Order BlocksOrder Blocks
Historical testing
Not tested on The Tradeskill. Engulfing candles are easy to code, which makes them a good pattern to test yourself with and without a location filter.
Limitations: when it fails
- In ranges, engulfings appear constantly.
- Large engulfing candles mean large stops.
- Gaps in 24-hour markets are rare, so definitions differ from stock charts.
Knowledge check
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