The candles of the pattern are ringed. An invented chart, drawn to show the shape. Not market data.
Also searched asbullish engulfing candle · engulfing bar · outside bar
How to recognise a bullish engulfing
- A falling candle followed by a rising one.
- The second body fully covers the first body. Wicks do not count.
- It appears after a fall, not in the middle of a range.
What it is taken to mean
It is read as buyers overwhelming the sellers of the previous period. The larger the second candle relative to the first, the more weight traders give it.
What traders check next
- Whether it formed at a level where the price has turned before.
- The candle after it: follow-through, or an immediate return into the pattern?
- The low of the two candles, which is where the reading would be proved wrong.
Where people go wrong
- Counting wicks instead of bodies.
- Taking it in a sideways market, where engulfing candles are common and mean little.
- Entering late, after a large second candle has already used most of the move.
Questions people ask
- Do the wicks have to be engulfed too?
- No. The usual definition asks only that the second body cover the first body.
- Is a bullish engulfing pattern a buy signal?
- No. It describes what buyers and sellers did during those candles. Studies of candlestick patterns find that, taken alone, they predict the next move only a little better than chance, if at all. It is one observation to weigh with others.
The words on this page
An explanation for study. It is not advice, a recommendation or a forecast, and a pattern or a situation described here says nothing certain about what a price will do next.