Definition
Engulfing Pattern
An engulfing pattern is a two-candle reversal where the second candle's body completely swallows the first.
A bullish engulfing forms when a small red candle is followed by a larger green candle that engulfs it, signalling buyers have taken control after a fall. A bearish engulfing is the opposite — a big red candle engulfing a small green one after a rally — signalling sellers have seized control.
Indian chartists treat engulfing patterns as among the more reliable candlestick reversals, especially at support or resistance on Nifty, Bank Nifty, and stocks. The larger the engulfing candle and the higher the volume, the stronger the signal of a shift in momentum.
Related terms
- DojiA doji is a candlestick with a tiny or absent body, signalling indecision between buyers and sellers.
- HammerA hammer is a bullish reversal candlestick with a small body at the top and a long lower wick, found after a decline.
- Shooting StarA shooting star is a bearish reversal candlestick with a small body at the bottom and a long upper wick, found after a rally.
- Candlestick PatternCandlestick patterns are formations of one or more candles that suggest likely shifts in market sentiment.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.