Bullish Engulfing
Key Takeaways
- 01.A two-candle pattern occurring at the end of a downtrend.
- 02.The body of the second (bullish) candle completely engulfs the body of the first (bearish) candle.
- 03.It signals a decisive shift from selling pressure to aggressive buying.
- 04.It is stronger when accompanied by high volume on the engulfing candle.
Why it matters
It shows that bulls have completely taken control of the market, reversing the intraday selling momentum. It represents a strong demand response that invalidates the bearish momentum of the previous day.
When it matters
It is highly significant when it engulfs multiple previous candles or appears at major historical support.
A small red candle followed by a much larger green candle whose body completely covers the red body.
Inspect the open/close prices of both candles to confirm the second body is larger than the first.
Common Mistakes
Ignoring wick engulfing vs body engulfing
Standard technical analysis only requires the real body of the second candle to engulf the first. Insisting on wicks being engulfed as well will cause you to miss valid signals.
📖 Real-World Example: Reversal at structural low
In mid-2023, a leading automotive stock was down 18% over a month. It printed a small red candle on a Thursday, followed by a massive green candle on Friday that opened lower but closed near its high, engulfing the Thursday candle. The pattern kicked off a 25% rally.