Engulfing Patterns
Overview
A bullish engulfing pattern occurs when a large green candle completely engulfs the prior red candle near the bottom of a trend. A bearish engulfing is the opposite — a large red candle swallows the prior green candle at the top. Engulfing patterns are among the most reliable two-candle reversal signals.
Key Concepts
The second candle's body must completely engulf the first candle's body, Volume should be higher on the engulfing candle, Location matters (support/resistance zones), Three-candle inside bar variants
Entry Signals
Bullish engulfing at a support level or demand zone, Bearish engulfing at resistance or supply zone, Volume significantly higher than recent average, Prior trend of at least 5 candles
Exit Signals
Stop below the engulfing candle's low (bullish) or above its high (bearish), Target 1:2 risk-reward minimum, Trail stops using subsequent swing lows/highs
Best Timeframes
1H+ timeframes, with Daily and Weekly being most authoritative
Pro Tips
Engulfing patterns that also break a key moving average add significant confluence. Check RSI for divergence to strengthen the signal.
More Topics in This Category
Pin Bar Setups
Pin bars are single-candle reversal patterns with a long tail (shadow) on one side and a small body on the opposite side. The tail shows a sharp rejection of a price level. Pin bars are the most widely used price action signal among naked chart traders and work on all markets and timeframes.
Hammer & Hanging Man
The hammer and hanging man are single-candle patterns with small real bodies and long lower shadows (at least 2× the body). A hammer appears at the bottom of a downtrend (bullish), while a hanging man appears at the top of an uptrend (bearish). The long wick indicates that sellers pushed price down but buyers recaptured ground.
Doji & Spinning Tops
Doji and spinning top candles signal indecision between buyers and sellers. A doji has nearly identical open and close prices, while a spinning top has a small body with long wicks on both sides. These patterns are most significant at the end of extended trends where they can foreshadow reversals.
Harami Patterns
A harami (Japanese for 'pregnant') is a two-candle pattern where a small candle is completely contained within the prior candle's body. A bullish harami appears in downtrends; a bearish harami in uptrends. Haramis signal fading momentum but require confirmation before trading.