The green candle opens below the red candle’s close and closes above its open — completely engulfing the prior candle’s body. Buyers didn’t just hold — they dominated.
What is a Bullish Engulfing?
The Bullish Engulfing pattern is a two-candle pattern. The first candle is red (bearish) — the market is still falling. The second candle is a large green candle whose body completely covers the body of the first candle. It opens lower than the red candle’s close and closes higher than the red candle’s open.
The size of the engulfing candle matters. A barely-engulfing green candle is weaker than one that overwhelms the red candle by a large margin. The bigger the green candle relative to the red, the stronger the signal.
What Does It Tell You?
The pattern tells a story of a power shift. Sellers were in control — then in a single candle, buyers overwhelmed them completely. The gap down at the open followed by a close above the previous candle’s high shows aggressive, committed buying. The sellers who held overnight or from the prior session are now sitting at a loss.
How to Trade It
- ✓ Look for it after a clear downtrend — ideally at a known support level.
- ✓ The larger the green candle relative to the red, the stronger the signal.
- ✓ High volume on the engulfing candle adds strong confirmation.
- ✓ Enter on the open of the third candle or on a small retracement back to the engulfing candle’s midpoint.
- ✗ Avoid in sideways or choppy markets — the pattern needs a clear prior trend to be meaningful.
- ✗ Be cautious if the green candle is only slightly larger than the red candle.
Stop loss: Place below the low of the engulfing green candle (or below the low of the red candle if tighter stops suit your style).