The engulfing bar pattern is one of the most powerful and profitable price action patterns, knowing how to use it properly as an entry signal will tremendously improve your trading profitability.
In this section you will learn how to use the engulfing bar pattern profitably, it doesn’t matter if you are beginner or advanced trader, if you are looking for seriously a better trading strategy more than what you have been using. You have come to the right place.
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:
1-The market is in a clearly definable uptrend or downtrend
2-The engulfing candle comprises of two candlesticks, and the first body is entirely engulfed by the second one.
3- The second real body is the opposite of the first real body.