Detailed Explanation of Reversal Candlestick: Engulfing Pattern

One of the common reversal candlesticks: Engulfing Pattern, also known as the engulfing shape, consists of two candlesticks. A bullish engulfing occurs at the end of a downtrend, where the body of the second bullish candlestick completely engulfs the body of the first bearish candlestick; a bearish engulfing occurs at the end of an uptrend, where the body of the second bearish candlestick completely engulfs the body of the first bullish candlestick.

The engulfing pattern can indicate the ebb and flow of bullish and bearish forces. Taking the bullish engulfing as an example, the following bullish candlestick engulfs the previous bearish candlestick, indicating an increase in bullish strength, gaining momentum, and suggesting signs of retreat from the bearish forces. The bearish engulfing pattern is exactly the opposite.

The importance of the engulfing pattern is related to the relative lengths of the bodies, the relationship between shadows, and other factors. The body of the first candlestick is very short, while the body of the second candlestick is very long, and the body of the second candlestick completely engulfs the first candlestick—including its shadows. Such an engulfing pattern holds greater significance.

For the engulfing pattern, we must also consider the overall technical context in which this pattern appears—Is there a reasonable risk-reward ratio and the product of the triggering probability? Is there a corresponding support and resistance level? For example, a bullish engulfing occurring in a support area is more likely to be an effective bottom reversal signal compared to a bullish engulfing without support implications. Do not view any single candlestick pattern in isolation; look around and pay attention to the overall situation. #大而美法案