Bullish Engulfing Pattern: How to Identify Price Reversal

Engulfing is a quite powerful candlestick reversal pattern in technical analysis. In simple terms, this pattern forms when a candlestick completely covers the previous (engulfing) candlestick in terms of body, without considering its shadow or wick.

Basic Conditions for the Formation of Engulfing Pattern

For this pattern to occur, two mandatory conditions must be met first:

First, there must already be a clear trend—either a bullish (bullish) uptrend or a bearish (bearish) downtrend. Engulfing does not appear spontaneously in sideways or ranging markets.

Second, at least two candlesticks with a specific formation are required. The first candlestick is the “covered” one, while the second candlestick is the “covering” one with a larger body.

Bullish Engulfing: Reversal Signal from Bearish to Bullish

Bullish engulfing appears at the end of a downtrend. Its format is: a small red (bearish) candlestick followed by a large green (bullish) candlestick that fully engulfs the red candlestick’s body.

Characteristics of Bullish Engulfing:

1. The length of the green candlestick’s body must be larger than the previous red candlestick’s body
2. The high price (peak) of the green candlestick must surpass the high of the previous red candlestick
3. The close price of the green candlestick should ideally surpass the high of the red candlestick (optional but ideal)

These three conditions ensure that buyers truly take control of the market from sellers.

Bearish Engulfing: Reversal Signal from Bullish to Bearish

Conversely, bearish engulfing occurs when an uptrend ends. The pattern: a small green (bullish) candlestick followed by a large red (bearish) candlestick that engulfs the entire body of the green candlestick.

Characteristics of Bearish Engulfing:

1. The length of the red candlestick’s body must exceed the length of the previous green candlestick’s body
2. The low price (bottom) of the red candlestick must be below the low of the green candlestick
3. The close price of the red candlestick ideally falls below the low of the green candlestick (optional but recommended)

Practical Tips for Identifying Engulfing

The main difference between bullish and bearish engulfing lies in the direction and color. Bullish engulfing suggests a price recovery after a decline, while bearish engulfing indicates a potential correction after an increase.

Always verify the previous trend conditions to ensure this pattern has the proper context. Engulfing formed without a prior trend may not necessarily be a reliable reversal signal.