Engulfing candle: bullish and bearish engulfing patterns explained

What an engulfing pattern shows

Unlike a hammer or a doji, an engulfing pattern needs two candles. The first is an ordinary period in one direction. The second opens on the same side the first closed, then runs all the way through the first body and closes beyond it.

Take the bullish version. Sellers win the first period: a red candle. The next period opens at or below that red close, so sellers seem to be still in charge. Then buyers take over and close the period above where the red candle opened. In a single period, buyers erased the whole of the sellers' previous win and more.

The bearish version is the same story with the sides swapped. A green period, then a red period that opens at or above the green close and closes at or below the green open.

Only the bodies count here. Wicks can poke out beyond the engulfing candle. The comparison is between the open-to-close of each candle.

Bullish vs bearish engulfing

The two charts above each shade a pair of candles and ask what the pair is: bullish engulfing, bearish engulfing or bullish harami. Read the colors left to right, then compare which body is bigger and which one comes second.

Most often confused with: the harami and the outside bar

The harami is the engulfing pattern reversed in time. A big candle comes first, and a small candle follows whose body fits inside the first body. An engulfing pattern shows a strong change of control. A harami shows the move slowing down. If the bigger body comes second, it is engulfing. If the bigger body comes first, it is a harami. On this site, a harami also needs the second body to sit inside the first and be at most 60% of its size.

The outside bar is a related idea that compares the full range, highs and lows included, instead of the bodies. A candle can be an outside bar without being engulfing, for example when its body is small but its wicks reach past the prior high and low. It can also be engulfing without being an outside bar, when its body covers the prior body but a prior wick sticks out. This site's rule uses bodies only, and also requires the two candles to have opposite colors.

What an engulfing pattern does not tell you

• That the change of control lasts. It covers one period. The side that lost can win the next one.
• Much in a choppy market. In a sideways range, colors flip constantly and engulfing pairs appear all the time.
• Anything when the first candle is tiny. Covering a near-doji is easy and says little.
• How far price will go. The size of the engulfing body is not a forecast.

How reliable is it?

Engulfing patterns are among the most tested candle patterns, and the honest summary is not exciting. Researchers have tested whether candlestick strategies create value for investors (for example Marshall, Young and Rose, 2006, in the sources); results depend on the market, the period and trading costs. There is no reliable success rate to quote. A separate line of work, by Lo, Mamaysky and Wang (2000), found some larger chart patterns carried information about returns, but that study was about chart patterns, not candles.

Where the idea is proven wrong

A bullish engulfing argues that buyers took over from the bottom of the pair. The lowest point of the two candles is where sellers last had control. If price later closes below the pattern's low, the takeover failed and the pattern's reading no longer holds. For a bearish engulfing, the mirror applies: a close above the pair's high means buyers took the ground back.