The engulfing candle pattern is one of the most powerful two-candle formations in trading. It's known for signalling potential reversals with a high level of accuracy.
What is the engulfing pattern?
It's made up of just two candles:
1. A smaller candle, which can be bullish or bearish.
2. Followed by a larger candle that completely covers the body of the first one — meaning it opens and closes beyond the previous candle’s range.
There are two main types:
Bearish Engulfing
Shows up after an upward trend.
First, there's a small green candle.
Then a larger red candle appears and completely engulfs the green one.
This usually signals a strong shift toward a downward move.
Bullish Engulfing
Appears after a downtrend.
Starts with a small red candle.
Followed by a larger green candle that covers the entire red candle.
Often points to a bullish reversal.
When is this pattern most reliable?
When it forms at a clear support or resistance level
On higher timeframes like the 4-hour or daily chart
If there's noticeable volume behind the move
After a well-defined trend has already played out
A simple example:
Price falls toward a known support zone.
You see a small red candle, then a strong green candle that fully engulfs it.
This is usually a smart spot to enter a trade.
A good stop loss can be placed just below the second candle.
Your target could be the next resistance level.
A few tips, especially for beginners:
Don’t trade every engulfing you see.
Always consider the context and where it’s forming.
The pattern becomes much more meaningful when the prior trend shows signs of exhaustion.
Something to keep in mind:
Candlestick patterns say a lot—but when you see an engulfing candle in the right spot, it stands out. Could you pay attention to it?
Coming up next:
Using this same pattern to catch false breakouts—entering the trade exactly where others are getting trapped.
