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.
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
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
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
1H+ timeframes, with Daily and Weekly being most authoritative
Engulfing patterns that also break a key moving average add significant confluence. Check RSI for divergence to strengthen the signal.
The piercing line is a two-candle bullish reversal pattern where a down candle is followed by an up candle that opens below the prior low and closes above the midpoint of the prior body. The dark cloud cover is its bearish counterpart — an up candle followed by a down candle that opens above the prior high and closes below the midpoint. Both patterns signal a potential shift in sentiment when they appear at key support or resistance levels.
An inside bar is a candle completely contained within the range (high to low) of the previous candle. It represents a contraction of volatility and indecision. Inside bars are used as breakout setups — traders wait for price to break above or below the inside bar's range (or the 'mother bar' range) to enter.
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.
The shooting star is a bearish reversal candle with a small body near the low and a long upper shadow (at least 2× the body). It appears at the top of uptrends and signals that buyers pushed price higher but sellers took control. It is the inverted version of the hammer.