The bullish and bearish Engulfing candlestick pattern formations are some of the most coveted candlestick patterns traders can make profitable trade off of. No matter where you are in your trading journey, you have undoubtedly heard of Engulfing candles. And there’s a reason for that — they work!
The Engulfing patterns are simple, accurate and frequently appear on all time frames.
The bullish Engulfing candlestick pattern acts as a bullish reversal signal 63% of the time while the bearish version has a whopping 79% accuracy rate as a bearish reversal signal, according to Bulkowski.
The rules for both versions of the pattern are the same, but since the bearish version is more reliable we’ll describe its rules and parameters below.
The first candle in the bearish version of the Engufing candlestick pattern is a regular sized bullish candle in an uptrend.
The second candle is a larger bearish candle that opens above the close of the first candle and continues to move down to close below the open of the first candle. This pattern is pretty easy to spot since the second candle must completely engulf the first.
The upper and lower wicks of both candles are not important, just the open and closing prices.