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Engulfing Reversal

Technical Analysis

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The engulfing candlestick pattern is a common reversal. They come in bearish and bullish varieties, but they both have one similar feature: the second bar in the pattern is larger than the first, and the opposite color.

A bullish engulfing candle’s first bar will be a black or red bar, usually with a smaller height. It indicates the sellers barely had control over the day. The second bar will be green or hollow, and substantially longer, indicating the buyers firmly overcame selling pressure on the second day. This pattern normally occurs near the low of a trend, but you should look for all the normal technical analysis signs, like support and resistance.

A bearish engulfing candlestick is the reversal of the bullish. The first day is a small bar that is green or hollow, which shows the buyers barely held control of the day. The second day is red or black, displaying solid bearish control over the day. This pattern normally happens at the top of a trend.

We would be remiss if we didn’t say that engulfing patterns can also be continuation patterns. Engulfing candles can indicate a trend is likely to continue. If candles consistently engulf prior candles in the trend direction, the trend is likely still strong. Trading pressure is joining in the trend direction, and other traders are confident it will continue.

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