Understanding Bullish Engulfing and Bearish Engulfing in Candlestick Trading

Engulfing is one of the most important candlestick patterns in technical analysis. Bullish engulfing is one of the most anticipated trend reversal signals by traders. To effectively use this pattern, we need to understand its precise definition, supporting conditions, and how to identify it.

What Is Engulfing? The Foundation of This Candlestick Pattern

Engulfing occurs when a candlestick completely covers (encloses) the body of the previous candlestick. An important point to remember is that shadows (wicks) on the candlestick are not considered—only the solid bodies of both candlesticks are relevant for this pattern.

Engulfing patterns cannot appear spontaneously. There are two main requirements that must be met first. First, a clear trend must already be established, whether it is an uptrend (bullish) or a downtrend (bearish). Second, it involves two consecutive candlesticks forming a specific pattern structure.

Bullish Engulfing: A Signal of Uptrend Reversal

Bullish engulfing appears in a bearish (downward) trend context. This pattern forms when the first candlestick has a small red (bearish) body, followed by a second candlestick with a much longer green (bullish) body that fully engulfs the previous red body.

To ensure we are dealing with a valid bullish engulfing, three conditions must be met:

1. The length of the bullish candlestick’s body must be greater than that of the previous bearish candlestick — this is an absolute requirement that distinguishes engulfing from other candlestick patterns.

2. The high price of the bullish candlestick must surpass the high price of the previous bearish candlestick — this condition ensures a strong breakout upward.

3. The close price of the bullish candlestick must exceed the high price of the previous bearish candlestick — although this condition does not always occur, its presence strengthens the reversal signal.

Bearish Engulfing: The Opposite of Bullish Engulfing

Bearish engulfing is the reverse of bullish engulfing and appears in a bullish (upward) trend context. The pattern forms when the first candlestick has a small green (bullish) body, followed by a second candlestick with a longer red (bearish) body that fully encloses the previous green body.

Validity criteria for bearish engulfing include:

1. The length of the bearish candlestick’s body must be longer than that of the previous bullish candlestick — a key standard as important as the conditions for bullish engulfing.

2. The low price of the bearish candlestick must be lower than the low price of the previous bullish candlestick — indicating a strong downward penetration.

3. The close price of the bearish candlestick must be lower than the low price of the previous bullish candlestick — similar to bullish engulfing, this condition is not mandatory but reinforces the reversal signal.

Differentiating the Two Patterns: Practical Application Key

Although bullish and bearish engulfing patterns have opposite structures, they serve the same function in technical analysis—identifying potential trend reversals. Traders use both patterns because of their consistency and relatively high accuracy when combined with other technical indicators.

One often overlooked aspect: shadows (wicks) on both candlesticks are not included in the engulfing calculation. Focusing solely on the candlestick bodies makes pattern identification more accurate and objective.