Engulfing (engulfing candle)
The engulfing is a two-candle reversal pattern: the second has a body that completely "engulfs" the first, in the opposite direction.
The bullish engulfing appears after a decline: a bearish candle is followed by a larger bullish one, which opens below the previous close and closes above its open. The bearish engulfing is the mirror image after a rise.
How to spot it
First candle with its body in the direction of the trend; second candle of the opposite colour, opening beyond the first one's close and closing beyond its open, so with a larger body that contains it entirely.
Worked example
After a few days of decline, a session opens at €15 and closes at €14.60. The next day the stock opens at €14.50 and closes at €15.30: the second body (from 14.50 to 15.30) contains the first (from 14.60 to 15): it's a bullish engulfing.
How to read it
The larger the second candle is compared with the first, the stronger the signal. As with all candles, context matters: an engulfing near an important support or resistance carries more weight.
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