Technical Glossary / Candlestick Patterns
Bullish Engulfing
A down candle followed by an up candle whose body covers the prior body.
Teaching sketch. It shows the shape, not a live quote and not a trade signal.
Definition
After a decline, a bearish candle is followed by a bullish candle that opens at or below the prior close and closes above the prior open. The second body engulfs the first body. Wicks do not have to be engulfed. The idea is that the down close was overwhelmed in the next period.
How to identify it
Two candles. The second body is opposite in colour and larger, fully covering the first body. In a gap market the second can open below and still cover the body by the close.
Bullish reading
At support, a bullish engulfing says demand took back the prior period's entire open-to-close loss. Traders use the engulfing low as the reference that should hold.
Bearish reading
If the next swing breaks that low, the engulfing failed. A bullish engulfing in a strong downtrend, far from support, is often a bounce.
Common mistakes
Counting a candle that covers only the wick, or only part of the body. Also ignoring a tiny first candle: engulfing noise is easy.
Limitations
The pattern says nothing about the target. Size the trade from the low of the pattern, which can be far from the close you would buy.
This note explains the term. A sketch shows the shape of the idea. Neither is a recommendation, a signal, or a comment on any security. Indicator settings and exchange conventions differ. Check the live chart and the contract specification before you use a number.