ENGULFING CANDLE - Powerful Price Reversal

Engulfing candlestick pattern is the most popular candlestick pattern. Engulfing candlestick is formed when it completely engulfs the previous candle.

There are two types of engulfing candlestick patterns.

Bullish Engulfing Pattern
Bearish Engulfing Pattern

For a perfect engulfing candlestick, no part of the first candle can exceed the shadow (or wick) of the second candle. This entails that the low and high of the second candle entirely covers the first. But the major emphasis is on the body of the candle.

The bullish candle gives the best signal when it appears below a downtrend and shows a rise in buying pressure. The pattern mostly causes a reversal of a current trend. It’s due to more buyers entering the market and driving prices further up. The pattern involves two candles, with the second green candle completely engulfing the previous red candle with no regard to the length of the tail shadows.

The bullish candlestick tells traders that buyers are in total control of the market, following a previous bearish run. It is often seen as a signal to buy and take advantage of the market reversal.

A bearish engulfing chart pattern is a technical pattern that indicates lower prices to come. It consists of a high (green) candle followed by a large down (red) candle that engulfs the smaller up candle. The pattern is necessary because it signals that sellers have overtaken the buyers. These sellers are aggressively driving the price downwards, more than buyers can push up.

A bearish pattern indicates that the market will soon enter a downtrend, following a past increase in prices. The pattern signals that the market has been taken over by bears and could push the prices even further down. It is often seen as a sign to enter a short position in the market.