Engulfing candle
Also called: Bullish engulfing, Bearish engulfing, Engulfing pattern, Outside bar, Yutan mum, Sarmalama
A two-candle pattern where the second candle's body completely covers the opposite-coloured body before it; it shows control changing hands.
4 min read · one puzzle on the page
What does an engulfing candle tell you?
An engulfing pattern is two candles. The second is the opposite colour of the first and its body covers the first body from end to end. Turkish traders also call it sarmalama, wrapping: the second candle wraps the first.
In a bullish engulfing, a large green candle swallows a small red one; in a bearish engulfing, a large red candle swallows a small green one. The story is a change of hands. One side led in the first candle, and in the next the other side erased all of it and then some.
What that means depends on where it happens. A bearish engulfing at resistance, on a second test of a high, shows sellers defending the level. The same two candles in the middle of a range are just two biggish candles.
How do you spot an engulfing pattern?
Look at bodies, not wicks. For a bearish engulfing, say the first candle is green, opening at 1.0850 and closing at 1.0862. If the next one opens at 1.0863 and closes at 1.0841, its red body covers the entire green body. Engulfing the wicks too makes it stronger, but it isn't required.
On stock charts the second candle often opens with a gap, so the definition is clean there. In forex and crypto the market trades around the clock, so the second candle usually opens right at the first one's close. There the read rests on the second body closing clearly beyond the far end of the first.
Check the location. A bearish engulfing matters at the end of a rally, under a known resistance or right next to a previous high. A bullish one matters at support, at the bottom of a decline. An engulfing pattern that doesn't meet a level carries little information.
The logical stop sits a little beyond the engulfing candle's high (bearish) or low (bullish). If price gets there, the idea that control changed hands is invalid. The distance from the close to that stop is your 1R, and on a big candle it gets long quickly.
Try it on a chart
You don't need a textbook engulfing candle on this chart; it asks the question behind the pattern: price has come back to a resistance where it turned before and left upper wicks on the second test. Look at how the candles close at the level and where your idea would be proven wrong.
Price returned to a resistance it turned back from before and was rejected with upper wicks. What's your call?
No sign-up needed. Make your call; when the chart opens you'll see why.
The most common engulfing mistake
Chasing the big candle. Because the engulfing candle is large, its close is often far from where the stop belongs. Sell the close of a 30-pip engulfing candle and your stop is more than 30 pips away. Some traders wait for price to retrace to the middle of the candle and accept missing the trade if it doesn't.
Counting every large opposite candle as engulfing. If the previous body was already a tiny doji, swallowing it is easy and says little. The engulfed candle needs a real body, and the engulfing one needs to close with clear dominance.
Skipping the level. On an hourly chart you'll see dozens of engulfing patterns a week, most in the middle of ranges where nothing is being defended. Read the pattern by its location first, its shape second.
When does an engulfing pattern fail?
On news candles. A data release can print a huge candle that swallows the previous one, but that's a spike, not a change of control. A candle or two later price can reverse completely.
Inside a strong trend, a single counter-trend engulfing is often just a deeper pullback. With the higher timeframe still rising, a bearish engulfing on the 5-minute can turn into a better entry for buyers.
Then there are engulfing candles born from a stop hunt. Price pushes above a previous high, takes the stops there, then drops back on a hard red candle. That reversal is often genuine selling; but if the red candle still closes above the level rather than below it, the breakout may be alive.
Frequently asked questions
Is an engulfing candle bullish or bearish?
There are two kinds. In a bullish engulfing, a large green candle fully covers the previous red body and shows buyers taking control; it means most at support, at the bottom of a decline. In a bearish engulfing, a large red candle swallows the previous green body and shows sellers taking over; it means most at resistance. In the middle of a range, both are weak.
Do the wicks need to be engulfed too?
In the classic definition only the bodies count: the second body must cover the first body end to end. If the second candle also covers the first one's wicks, with a higher high and a lower low, the pattern reads stronger; some call that an outside bar. If the wicks aren't engulfed the pattern is still valid, just somewhat weaker.
Where do you put the stop on an engulfing candle?
On a bearish engulfing, a little above the engulfing candle's high; on a bullish one, a little below its low. If price reaches it, the idea that control changed hands is invalid. Because the candle is large, that distance can be long; rather than tightening the stop, reduce the position or wait for a pullback to get a better price.
