Bullish and bearish engulfing patterns.

Picture EUR/USD falling for several candles in a row. Another red candle closes lower. The next candle opens at that close and climbs until its green body is taller than the red one and covers it completely.

That two-candle shape is an engulfing pattern. The second body swallows the first and the colour flips, a sign that the side pushing the price may have changed.

What does a bullish engulfing pattern look like?

A bullish engulfing pattern forms after a decline. The first candle is bearish. The second is bullish, and its real body, the part between the open and the close, covers the whole body of the first.

Here is an illustrative example on a EUR/USD 4-hour chart, after three falling candles. The prices are round numbers chosen for this lesson.

The first body runs from 1.08300 up to 1.08400. The second runs from 1.08300 up to 1.08460, so it covers the first body and closes 6 pips above the first candle's open.

In plain terms, sellers moved the price down 10 pips during the first candle. During the second, buyers took all of it back and added 6 pips more before the close.

Only the bodies need to be covered in the usual definition, so the wicks can poke out. If bodies and wicks are new to you, how to read a candlestick explains them.

Why forex candles often open at the last close

On a stock chart the second candle often opens with a gap below the first close. Spot forex trades around the clock from Monday to Friday, so a new candle usually opens at, or very near, the previous close.

Some definitions, written with gapping stock charts in mind, ask the second body to start beyond the first close. On forex charts that rarely happens, so this lesson accepts a body that starts level with it, as in the table.

The close then decides it: it has to finish beyond the first candle's open.

What does a bearish engulfing pattern look like?

A bearish engulfing pattern is the mirror image. It forms after a rise: a bullish candle is followed by a bearish candle whose body covers the first body from top to bottom.

Take an illustrative USD/JPY 4-hour chart. On pairs quoted in yen a pip is 0.01, so a move from 150.20 to 150.50 is 30 pips.

1. The first candle is bullish. It opens at 150.20 and closes at 150.50, a body of 30 pips.
2. The second candle is bearish. It opens at 150.50 and closes at 150.05, a body of 45 pips.
3. Its close sits 150.20 minus 150.05 = 0.15 below the first open, which is 15 pips.

Buyers added 30 pips in the first candle, and sellers erased all of them plus 15 more in the second. The pattern records what already happened and says nothing certain about the next candle.

Which details make an engulfing pattern stronger?

Engulfing pairs appear often on any chart, so it helps to sort the ones worth noticing from the noise. These details usually add weight:

• A clear trend before it. A bullish engulfing inside a sideways drift has no decline to reverse.
• A level that matters, such as a support or resistance level or a round number like 1.08000.
• A second body that is large next to recent candles and closes near its high, or near its low in the bearish case.
• A first candle with a real body. When the first candle is a doji, almost any candle can cover it.
• A higher timeframe. A daily engulfing reflects a full day of trading, while a 5-minute one can come from a single burst of orders.

Treat these as reading habits. Each one makes a reversal more plausible, and none of them guarantees it.

A worked example: planning a trade from a bullish engulfing

This example turns the EUR/USD pattern into a plan with fixed risk. It illustrates the arithmetic and is no recommendation to take the trade.

Assume a $5,000 account in US dollars and a rule of risking 1% per trade, which is $50.

1. The engulfing candle closes at 1.08460. That close is the entry.
2. The lowest point of the pattern is the second candle's low, 1.08260. The stop goes 5 pips below it, at 1.08210.
3. The risk distance is 1.08460 minus 1.08210 = 0.00250, which is 25 pips.
4. In a USD account, one standard lot of EUR/USD is worth $10 a pip, so 25 pips cost $250 per lot.
5. Position size is $50 ÷ $250 = 0.20 lot. At 0.20 lot a pip is worth $2, and 25 × $2 = $50.
6. A target at twice the risk is 50 pips above the entry, at 1.08960. Reaching it would pay 50 × $2 = $100.

The position size lesson explains step 5 in full, and the lot size calculator repeats it for other pairs.

With a 2 to 1 reward to risk, a series of trades like this one needs to win more than one in three to make money before costs.

A buy also fills at the ask, so the spread puts the real entry slightly above the chart price.

A stricter entry waits for price to trade above the engulfing high, 1.08480, before buying. That filters out patterns that stall at once, and it gives a worse entry price when the move does continue.

Where engulfing patterns fail

An engulfing pair is two candles of price. It carries no information about why the price moved or who is still waiting to trade.

In a ranging market, price swings between a floor and a ceiling. Engulfing pairs appear on many of those swings without starting a new trend.

A data release can print a huge engulfing candle in minutes. The stop below it then sits far away, so a fixed-risk position becomes very small, and the move can reverse as fast as it came.

Daily candles depend on when your broker's trading day ends. Two platforms with different server times can draw different daily candles, so a daily engulfing on one may not exist on the other.

The evidence is also thin. Published tests of candlestick patterns give mixed results that change with the market and the exact definition used, so treat an engulfing pair as one input alongside trend and location.