Engulfing candle: what it is and how to spot one

What an engulfing candle is, and why it’s called that

An engulfing pattern is two candles side by side. The second one’s body, the thick part between its open and close, is big enough to cover the first one’s body from end to end. To engulf means to swallow, and on the chart the second body swallows the first.

The two candles also close in opposite directions. One closed down (red) and the other closed up (green), or the other way round. The second candle is the one traders call the engulfing candle.

It’s one of the most familiar candlestick patterns. Like every pattern, the name describes a shape that has already formed. It says what the last two candles did, not what the next one will do.

How to identify an engulfing candle, step by step

In the example, the red body runs from 104 down to 102.5. The green body runs from 102 up to 105.5. It starts below the red close and ends above the red open, so it covers the whole red body.

Some tools count a body that only matches an edge, such as a green open exactly at the red close. Others want it to go past both edges. Definitions vary, so pick one and use it every time.

Bullish and bearish engulfing

Bullish engulfing. A red candle, then a green candle whose body covers it. The green candle opens at or below the red close and closes at or above the red open. It’s often spotted after a fall.

Bearish engulfing. A green candle, then a red candle whose body covers it. The red candle opens at or above the green close and closes at or below the green open. It’s often spotted after a rise.

What counts, and what doesn’t

Bodies, not wicks. The standard rule compares bodies only. The first candle’s wicks can stick out past the second candle, and it still counts.

Some traders want the wicks covered too. They only count it when the second candle’s high and low also reach past the first candle’s high and low. That’s a stricter rule, and it finds fewer. Both are in use, so say which one you mean.

Wicks alone aren’t enough. If the second candle’s range covers the first but its body doesn’t, that’s an outside bar, not an engulfing candle.

The colours must be opposite. Two green candles, one bigger than the other, isn’t an engulfing pattern. A first candle that opens and closes at the same price (a doji) has no colour, so most rules skip it.

Size is your call. Some traders ignore engulfing candles with a body smaller than a number of ticks they choose. Others want the second body to cover more than one candle before it. There’s no single rule.

Wait for the close. Until the second candle closes, its body can still change. Many traders only count the pattern once it has closed.

Wildflower’s Indicator uses the body over body rule, counts a body that only matches an edge, and waits for the close. You can also ask for the wicks covered. A smallest body size, or a body that covers more than one candle, isn’t one of its checks. More on that below.

What can happen after an engulfing candle

Once an engulfing candle has closed, anything can follow. Price can carry on the same way, turn back through it, or drift sideways. The pattern can’t tell you which.

Where it forms. Many traders look at where the pattern sits, not just the pattern. A bullish engulfing after a long fall, at a support level, reads differently to them than one in the middle of a quiet range.

The high and the low. Some traders mark the engulfing candle’s high and low. They watch for a later candle to close past one of them. Others use the candle’s own close. Both are ways of describing it, not rules that it works.

Where the engulfing pattern comes from

Candlestick charts began with Japanese rice traders centuries ago. Steve Nison brought the patterns to Western traders in his 1991 book Japanese Candlestick Charting Techniques, and the engulfing pattern is one of the reversal patterns he described.

In Nison’s version, a bullish engulfing only counts after a fall, and a bearish one only after a rise. Many traders today mark every one they find and look at where it formed as a separate step. It’s read the same way on any candle chart: futures, forex, crypto or stocks.

Often confused with

Outside bar. The second candle’s high is above the first candle’s high and its low is below the first candle’s low. It compares the whole range, wicks included, and the colours don’t matter. An engulfing candle can be an outside bar too, but it doesn’t have to be. Read about outside bars.

Harami. The opposite shape: the second body sits inside the first body. Read about the harami.

Inside bar. The second candle’s whole range, wicks included, sits inside the first candle’s range. Read about inside bars.

Piercing line and dark cloud cover. Close cousins where the second candle only covers part of the first body: past its halfway point, but not all of it.

Engulfing candle indicator for TradingView

Have every engulfing candle marked, to your own rules

Checking every pair of candles by eye is slow, and it’s easy to miss one. Instead, tell Wildflower’s Indicator what you want in plain words, like “mark every bullish engulfing candle on the 5-minute chart”. It uses the body over body rule, and it can mark outside bars too if you also want the wicks covered. No coding needed. It marks every one on a chart so you can check it matches your rules. Then it gives you a script to add to TradingView, with a step-by-step guide.

Try it free. You only pay when you add it to TradingView.

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Related

• How to read candlesticks
• Pin bar, hammer and shooting star
• Glossary

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