Technical & Chart AnalysisBullish engulfingBearish engulfing
Engulfing Pattern
A two-candle formation in which the second candle's body completely covers the body of the first, signalling a possible reversal.
What Engulfing Pattern means
An engulfing pattern requires two consecutive candles of opposite direction where the second body fully engulfs the first body. In a bullish engulfing the first candle closes lower than it opened, and the following candle opens at or below that close and closes above the previous open, so the up body covers the down body. A bearish engulfing is the reverse and appears after an advance. The strict definition concerns bodies only; the wicks of the second candle do not need to cover the first candle's wicks.
The pattern is read as a shift in control: the side that lost the previous period not only recovered it but closed beyond its whole range of committed trade. Traders typically enter on a break of the engulfing candle in the direction of the signal and place the stop beyond its extreme. The limitations are real. Larger engulfing candles create wide stops, the pattern appears constantly on lower timeframes where it means little, and in twenty-four-hour FX the absence of true opening gaps makes engulfing bodies easier to form than in equities.
Worked example
GBP/USD prints a candle from 1.2740 down to a 1.2705 close, then the next candle opens at 1.2702 and closes at 1.2758. The second body engulfs the first, and a long entry above 1.2760 would use a stop below the pattern low.
Related terms
- Candlestick ChartA price chart where each period is drawn as a body spanning open to close plus wicks marking the period high and low.
- DojiA candlestick whose open and close are virtually identical, producing a tiny body that signals indecision between buyers and sellers.
- Price ActionAn approach that reads raw price movement, candle structure and levels directly, with few or no derived indicators on the chart.
- SupportA price area where buying interest has previously been strong enough to halt or reverse a decline.
- ResistanceA price area where selling interest has previously been strong enough to stop or reverse an advance.
Frequently asked questions
What does Engulfing Pattern mean in forex trading?
A two-candle formation in which the second candle's body completely covers the body of the first, signalling a possible reversal.
How does Engulfing Pattern work in practice?
The pattern is read as a shift in control: the side that lost the previous period not only recovered it but closed beyond its whole range of committed trade. Traders typically enter on a break of the engulfing candle in the direction of the signal and place the stop beyond its extreme. The limitations are real. Larger engulfing candles create wide stops, the pattern appears constantly on lower timeframes where it means little, and in twenty-four-hour FX the absence of true opening gaps makes engulfing bodies easier to form than in equities.
What is an example of Engulfing Pattern?
GBP/USD prints a candle from 1.2740 down to a 1.2705 close, then the next candle opens at 1.2702 and closes at 1.2758. The second body engulfs the first, and a long entry above 1.2760 would use a stop below the pattern low.
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