An engulfing pattern is a two-candlestick reversal pattern where the second candle’s body completely covers the first candle’s body. In a bullish engulfing, a large green candle engulfs a small red candle—signaling potential upward reversal. In a bearish engulfing, a large red candle engulfs a small green candle—signaling potential downward reversal.
- Two-candle pattern: second body engulfs first body
- Bullish: Small red + Large green (at support)
- Bearish: Small green + Large red (at resistance)
How Engulfing Patterns Work
The second candle shows a momentum shift:
Bullish Engulfing:
Day 1 (Small Red):
Open: ₹102
Close: ₹100
Body: ₹102 to ₹100
Day 2 (Large Green):
Open: ₹99
Close: ₹105
Body: ₹99 to ₹105 (engulfs Day 1)
Psychology:
- Day 1: Bears in control
- Day 2: Bulls overwhelm, reverse control
- Momentum shifted to buyers
Quick Reference: Engulfing Patterns
| Pattern | First Candle | Second Candle | Signal |
|---|---|---|---|
| Bullish Engulfing | Small red | Large green | Buy signal |
| Bearish Engulfing | Small green | Large red | Sell signal |
Example: Trading Bullish Engulfing
Bullish Engulfing at Support:
| Day | Candle | Level | Action |
|---|---|---|---|
| 1-5 | Red candles | Downtrend | - |
| 6 | Small red | At ₹500 support | First candle |
| 7 | Large green engulfs | Engulfing! | BUY on close |
| Stop | - | ₹495 (below pattern) | - |
| Target | - | ₹525 (resistance) | - |
Result: Pattern signaled reversal at support.
An engulfing pattern occurs when the second candle’s body completely covers the first. Bullish engulfing at support signals buying opportunity. Bearish engulfing at resistance signals selling opportunity. One of the more reliable candlestick patterns.
Bullish Engulfing
Characteristics
- After a downtrend
- Small red candle
- Large green candle opens below and closes above the red
Best Context
- At support level
- After extended selling
- With increasing volume on green candle
Trade Setup
- Entry: Close of engulfing or next open
- Stop: Below engulfing pattern low
- Target: Previous swing high or resistance
Bearish Engulfing
Characteristics
- After an uptrend
- Small green candle
- Large red candle opens above and closes below the green
Best Context
- At resistance level
- After extended rally
- With increasing volume on red candle
Trade Setup
- Entry: Close of engulfing or next open (short)
- Stop: Above engulfing pattern high
- Target: Previous swing low or support
Engulfing Pattern Strength
Stronger Signals
- Larger second candle (overwhelming)
- At key support/resistance
- High volume on second candle
- After extended trend
Weaker Signals
- Similar sized candles
- In middle of range
- Low volume
- Against larger trend
Common Mistakes
-
Trading engulfing anywhere – Location matters. Engulfing at key levels is reliable; mid-range is noise.
-
Ignoring the larger trend – Counter-trend engulfing is risky. With-trend engulfing is safer.
-
Not waiting for close – The engulfing isn’t confirmed until the second candle closes.
-
Wrong sizing – Second candle must completely engulf first body. Partial doesn’t count.
How JournalPlus Tracks Engulfing
JournalPlus lets you tag engulfing patterns at entry, analyzing whether these reversal signals lead to profitable trades in your strategy.
