Reversal Patterns: Engulfing Patterns

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What is it?

It is the first of multiple candle line patterns and is a major reversal signal with two opposite color real bodies composing this pattern.

Bullish/Bearish Engulfing Pattern

  1. Clearly definable uptrend (bearish engulfing pattern) or a clearly definable downtrend (bullish engulfing pattern), even if the trend is short
  2. Two candles comprise of the engulfing pattern, where the second real body must engulf the prior real body (need not engulf the shadows)
  3. Second real body of the engulfing pattern should be the opposite color of the first real body.
    • Exception is that doji engulfed by a large white body could be a bottom reversal (in downtrend)
    • Doji engulfed by a large black body could be a top reversal (in uptrend)

Factors to improve likelihood of engulfing pattern

  1. First day has a very small body and second day has a very long body

Reflects a dissipation of the prior’s trend force and the large second real body proves an increase in force behind the new move

  1. Appears after a protracted or very fast move

Creates an overextended market (overbought/oversold)

  1. Heavy volume on the second real body of engulfing pattern
Bullish and Bearish Engulfing Patterns
Nison, S. (1992). In Japanese candlestick: Charting techniques. essay, New York Institute of Finance.
Using Engulfing Patterns as Support & Resistance
Using Bearish Engulfing Pattern as resistance and Bullish Engulfing Pattern as Support

Uses of Engulfing Patterns

#1 Can be used as a support/resistance

  • Use the high of a bearish engulfing pattern as resistance
  • Use the low of the bullish engulfing pattern as support

(This is especially useful if the market has moved too far from the lows [bullish engulfing pattern] or highs [bearish engulfing pattern])

#2 Point of entry

As we need to wait for the close of the second session to determine the engulfing pattern, we should wait for a possible correction to the support/resistance for bullish/bearish engulfing pattern to enter a long/short position


Hi I’m Rice. I started my investing journey in 2021 and hope to inspire and educate other new investors whilst learning about investing! My hope is to learn and translate it into a new post every week. So hope to see you join me on my journey!

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