What is an Engulfing Pattern?

An Engulfing Pattern is a two-candlestick reversal pattern in which the second candle’s real body completely covers the real body of the first candle. It can indicate a change in buying or selling pressure, depending on its direction and location on the chart. 

Generally, an Engulfing Pattern is of two types:

A) Bullish Engulfing Pattern

A bullish engulfing pattern forms when a smaller bearish candle is followed by a larger bullish candle whose real body covers the previous candle’s real body. It commonly appears after a price decline and may indicate that buying pressure is increasing. 

However, to gain confirmation, traders usually examine:

• Volume
• Support levels
• The prevailing trend, and 
• Subsequent price action

B) Bearish Engulfing Candlestick

A bearish engulfing candlestick pattern forms when:

• A smaller bullish candle is followed by a larger bearish candle

and 

• The real body of the larger bearish candle covers the previous candle’s real body.

It commonly appears after a price rise and may indicate increasing selling pressure. Generally, traders gain confirmation and additional context by analysing subsequent price action, volume, and resistance levels.

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