What is an engulfing bar pattern?
This reversal candlestick pattern consists of two opposite colored bodies in which the second body engulfs or covers entirely the first one:
A bullish engulfing pattern forms at the end of a downtrend, it provides a clear signal that the buying pressure has overwhelmed the selling pressure.
In other words, the buyers are now involved.
A bearish engulfing pattern occurs at the end of an uptrend, it is a top trend reversal indicator, it shows that the bulls are no more in control of the market, and the price trend is likely to reverse.
See the illustrations below:
According to Steve Nison, the father of modern candlestick charting, this candle must meet three important criteria to be considered as a reversal pattern:
- The market is in a clearly definable uptrend or downtrend
- The engulfing candle comprises of two candlesticks, and the first body is entirely engulfed by the second one.
- The second real body is the opposite of the first real body.