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Key Takeaways
- An engulfing pattern needs two bars, with the second real body covering the first real body from open to close.
- A bullish reversal example has a down body followed by an engulfing up body after a decline; the bearish example reverses the body sequence after an advance.
- Standard definitions compare real bodies only, so shadows may extend beyond the second bar without disqualifying the pattern.
- The inclusive body rule accepts equal endpoints; a stricter screen can require the second body to extend beyond one or both endpoints.
- Mark the selected trigger and invalidation, then calculate position size and the target distance from the assumed entry price.
What is an engulfing candlestick pattern?
An engulfing candlestick pattern is a two-candle reversal pattern in which the second real body covers the first real body from open to close and closes in the opposite direction. A bullish engulfing follows a decline, with an up body covering a down body. A bearish engulfing follows an advance, with a down body covering an up body.
The pattern uses two completed candles and reads as a reversal only after a trend: a decline for the bullish version, an advance for the bearish one.
Engulfing pattern rules: body containment
For bullish engulfing, C1 < O1, C2 > O2, O2 ≤ C1 and C2 ≥ O1. For bearish engulfing, reverse all four inequalities.
These inclusive endpoint tests allow equal body lengths when both endpoints match. Require one or both endpoints to extend beyond the first body when using a stricter version.
The test compares open and close. Read each high and low separately when defining the pattern’s full range or a trade level.
Formula
Bullish body test: C1 < O1, C2 > O2, O2 ≤ C1 and C2 ≥ O1. Bearish body test: C1 > O1, C2 < O2, O2 ≥ C1 and C2 ≤ O1. Apply the selected preceding-trend condition.- Bar 1 is the earlier candle and bar 2 is the engulfing candle.
- The comparison uses real bodies, meaning open and close, not the high and low.
- Some screeners require strict inequalities, so equal opens or closes can change the count of detected patterns.
Bullish and bearish engulfing examples
XYZ declines across the three displayed sessions to a $50.60 close. The third session opens at $51.40 and closes at $50.60. The engulfing session has O $50.30, H $52.05, L $49.95 and C $51.85.
- Bar 1 real body: $50.60 to $51.40, a $0.80 down body
- Bar 2 real body: $50.30 to $51.85, which covers $50.60 to $51.40 entirely
- Next-session intrabar trigger: $52.06, above the $52.05 engulfing high
- Assumed entry $52.06 minus stop reference $49.94 = $2.12 per share
- Target $56.30 minus assumed entry $52.06 = $4.24; $4.24 / $2.12 = 2.00 reward-to-risk distance ratio
The next candle reaches $52.70 and closes at $52.40, so it fires both triggers: the $52.06 intrabar break and a close above the $52.05 high. Filled at $52.06, the trade risks $2.12 to make $4.24; a plan that buys the $52.40 close starts from that higher price, with more risk and less reward to the same stop and target.
The next up body spans $50.30 to $51.85, covering the prior body completely. Its length is $1.55, or 1.94 times the prior body. Its high is $52.05 and low $49.95.
The bearish panel reflects those prices to demonstrate the opposite body sequence after an advance. Its signal high is $50.05 and low $47.95; the next close is $47.60, below that low.
Engulfing entry, stop and target example
For the bullish intrabar plan, use a $52.06 trigger and $49.94 stop reference. Assuming entry at $52.06, the entry-to-stop distance is $2.12 per share.
A $56.30 target gives a $4.24 entry-to-target distance and a 2.00 ratio between the two distances. Both calculations use the same entry price.
The following candle reaches $52.70 and closes at $52.40. It crosses the intrabar level and also closes above the high. A trader who waits for that close buys at $52.40, so measure that entry’s risk and reward from $52.40.
How traders use engulfing patterns
Locate the pattern at Support or Resistance, then apply the selected Relative Volume filter. Specify whether the setup uses the second candle’s extreme or the extremes across both candles.
If the $52.06 trigger fills, Options Flow shows whether call buyers paid the ask on the reversal, and the Options Profit Calculator shows each structure’s payoff at the $56.30 target and at the $49.94 stop.
Limitations of the engulfing pattern
- Trade it only after a defined trend. The same two bodies inside a sideways range carry no reversal meaning, so let the next candle clear the signal extreme before you act.
- Write the body rule into the scan. Inclusive or strict inequalities and the preceding-trend definition differ between sources and screeners, so two platforms can flag different candles.
- Size from the full range, not the body. The test ignores shadows, and the two-bar range can be much wider than the bodies, so a stop beyond the extremes can sit far from the entry: here the $2.12 stop distance exceeds the $1.55 engulfing body.
- Pick the trigger in advance. An intrabar break of the high and a completed close above it activate at different times and prices.
- Fix the interval and session boundaries before scanning, because a different interval or session builds different candles and moves every trigger and stop.
Bottom line
An engulfing pattern shows one candle’s body covering the prior body in the opposite direction, and its extremes give clear trigger and stop levels. Use it after a defined trend at a meaningful level, state the body rule and trigger in advance, and size the trade from the entry-to-stop distance.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- Fidelity: Identifying Chart Patterns (Technical Analysis session 3)
- Fidelity: The Eight Best-Performing Candles (Bulkowski, Stocks & Commodities)
How entries are sourced, calculated and updated: editorial methodology.