What is Engulfing Pattern?

An engulfing pattern is a candlestick chart pattern that is often used in technical analysis to signal a potential trend reversal. The pattern occurs when a small candlestick, referred to as the "engulfing" candlestick, is followed by a larger candlestick that completely "engulfs" the previous one.

There are two types of engulfing patterns: bullish engulfing and bearish engulfing.

A bullish engulfing pattern occurs when a small red (bearish) candlestick is followed by a larger green (bullish) candlestick that completely engulfs the previous candlestick. This is interpreted as a bullish signal, suggesting that buying pressure has overcome selling pressure and that a potential trend reversal may be imminent.

On the other hand, a bearish engulfing pattern occurs when a small green (bullish) candlestick is followed by a larger red (bearish) candlestick that completely engulfs the previous candlestick. This is interpreted as a bearish signal, suggesting that selling pressure has overcome buying pressure and that a potential trend reversal may be imminent.

It`s important to note that an engulfing pattern should not be considered in isolation and should be analyzed in conjunction with other technical indicators and market factors before making any trading decisions.