Engulfing is a two candle pattern that is frequently seen on the charts. For the bullish case, the first candle must be a black one which is followed by a white candle that ‘engulfs’ the previous candle. In other words, the body of the white candle must be larger than the black candle. For the bearish case, the first candle would be white and the second candle would be black.

To note, the entire range of the first candle, including both the body and the shadows, must be covered by the body of the second candle for a proper pattern.

Most Used Trends of Engulfing Pattern

Bullish Pattern

Bullish Engulfing

Bearish Pattern

Bearish Engulfing

Advantages of Bullish & Bearish Engulfing Pattern

In a bull market, the end of a short term or intermediate correction can be caught quite well with the bullish version of this pattern. In a bear market, the Bearish Engulfing works well for capturing the short term tops. The success of this pattern increases with the height of the second candle and the direction of the larger trend. Generally, this pattern gives a positive result in 2/3rd of the instances.

Limitations of Bullish & Bearish Engulfing Pattern

The success rate of the Bullish Engulfing in a major bear market comes down dramatically and the same is visible for a Bearish Engulfing in a major Bull market. In both these cases, the probability of the pattern acting as a Continuation pattern increases.

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