We have gone through 1 candle patterns like Hammer, Hanging Man etc which give us important signals based on the length of their body, tail and color of the body. Also, it was important to see the area of occurrence of these patterns like near the top or near the bottom.
Engulfing Pattern consists of 2 candle sticks, one engulfing/covering the other. This is a reversal pattern with two candles of opposite color. There are two types of engulfing patterns observed in trading.
Bullish Engulfing: When a the body of a green candle engulfs/ covers the body of a red candle, it is called Bullish Engulfing.
This is generally observed at the of a down trend signalling the end of bearishness and start of a bull run.
Bearish Engulfing: When a the body of a red candle engulfs/ covers the body of a green candle, it is called Bearish Engulfing.
This is generally observed at the end of a up trend signalling the end of bullishness and start of a bearish phase.
Conditions for Engulfing Patterns:
- A clear trend should be there, while its a bull run or bearish phase.
- There must be two candles to identify it as an engulfing pattern.
- The body of one candle should completely engulf/cover the other.
- Color of the bodies of both candles must be different.
Greater the length of the body of the second candle, stronger the reversal.