Candlestick Formation: Engulfing Pattern

The Engulfing pattern is a strong candlestick formation, which is used to confirm many signals and chart patterns.
In this article you will learn how it is identified and used in trading.

Structure
The Engulfing pattern is constructed of two bars:

1. Bullish Engulfing Pattern is constructed of two bars, which the second one opened below the first, and closed above - engulfing the first candle
2. Bearish Engulfing Pattern is constructed of two bars, which the second one opened above the first, and closed below- engulfing the first candle

We will ignore the high and low of the first candle. If the second candle engulfed the body of the first candle - it is a valid Engulfing Pattern.

Illustration:

Fig. 1: Illustration of the Engulfing Candlestick Formation

Trading
As we described in the first article - How To Trade Chart Patterns, candlesticks patterns are used to confirm our chartist signals. This particular candlestick is very useful in that, as it has a highly precise entry point.

When confirming Long trades, we will enter after the second candle Closes
When confirming Short trades, we will enter after the second candle is below the low of the first candle. We will not wait for candle to close. This is because Short trades occur much faster and needs less confirmation.

Examples

Fig. 2: Examples of the Bullish and Bearish Engulfing

Fig. 3: Examples of the Bullish and Bearish Engulfing

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