The Engulfing Candlestick Pattern and How to Trade It

The Engulfing Candlestick Pattern and How to Trade It

The Engulfing Candlestick Pattern

Engulfing candlestick pattern consists of two candles. It shows strong bullish or bearish reversal sentiment of the market. This pattern is more powerful when it appears near to the support or resistance. In a bullish engulfing pattern, a green candle must completely engulf the red candle. The green candle can open at the gap down and engulf the red or it can open at the price of previously closed candle and engulf it fully.

The formation of Bullish Engulfing Candle

The formation of Bullish Engulfing Candle looks like a Green candle fully covers the body of previous day red candle. As shown in the picture below, the green candle can start with gap down. Also it can open at the same price of previous day close but it must cover the full body of previous day candle.

bullish engulfing candle

Is Bullish Engulfing pattern is Hammer candle?

Yes a bullish engulfing pattern is hammer candle. When we combined both candles with help of blending candle approach, we get a hammer formation as shown in the picture below.

The formation of Bearish Engulfing Candle

Bearish engulfing candle formation looks like a red candle opened with gap up but fully covered the body of previous day Green candle and close below the body of previous day candle. Bearish engulfing can also start with previous day closed price but it must engulf full body of previous day red candle. The following picture shows both with gap up and at price formation.

Bearish Engulfing Candle
Bearish Engulfing Candle

Is Bearish engulfing is Shooting Star candle?

Yes a bearish engulfing candle is shooting star candle when we use blending candle approach. As shown in the picture below, both candles are added and resulted candle was shooting star.

Bearish Engulfing Shooting Star

Bearish engulfing example EURUSD Daily Chart

The following picture shows an example of Bearish engulfing pattern. As you can see the price opened with gap up and it fully covered the previous day candle body. Also it closed below the previous day candle body. The red lines shows the previous day candle body.

Bearish Engulfing Pattern

As you can see in the following picture, the EURUSD chat is showing a bearish engulfing pattern and we saw the market changed its direction from bullish to bearish.

Bearish Engulfing pattern

Bullish Engulfing example GBPNZD Daily Chart

The following picture shows bullish engulfing pattern on GBPNZD daily chart. As you can see the market opened with gap down but closed above the previous day candle body. Therefore it triggered the sentiment of bullishness and market went towards north.

How to Trade Engulfing Pattern

As discussed earlier, the engulfing pattern is actually a shooting star or hammer pattern. So the trading method would be the same. A trader can trigger a buy or sell order after the engulfing candle is formed and closed while completing covering the previous body. The stop loss will go below or above the previous high. As shown in the following picture, the stop loss is below the black dotted line and that is low of this move.

Bullish Engulfing GBPNZD Pattern

Similarly, also note these formations are occurring at the resistance level. Hence the market change the direction and prices started to move up.

Conclusion

We will agree that engulfing candlestick pattern is a strong reversal sign and also it is important to see if that appears near to resistance or support level. Don’t forget to check Hammer Candle, Shooting Star, Piercing candle, and Dark Cloud candle formation pattern that occurs more frequently and traders love them!