{"id":17347,"date":"2022-04-11T23:26:57","date_gmt":"2022-04-11T23:26:57","guid":{"rendered":"https:\/\/howtotrade.com\/?post_type=chart-patterns&#038;p=17347"},"modified":"2024-10-03T08:08:13","modified_gmt":"2024-10-03T08:08:13","slug":"engulfing-candle","status":"publish","type":"chart-patterns","link":"https:\/\/howtotrade.com\/chart-patterns\/engulfing-candle\/","title":{"rendered":"The Engulfing Candle: Definition and Trading Example"},"content":{"rendered":"\n<p>Do you want to trade <a href=\"https:\/\/howtotrade.com\/courses\/japanese-candlesticks\/japanese-candlestick-cheat-sheet\/\">Japanese candlestick patterns<\/a>? Read on to learn more about one of the most powerful \u2014 the engulfing candle.<\/p>\n\n\n\n<p>The engulfing candle is a trend reversal indicator. Engulfing candles come in two types: the bearish engulfing pattern and the bullish engulfing pattern. This article will cover identifying and trading these formations on the financial markets.<\/p>\n\n\n\n<div class=\"htt-section-highlight\">\n    <div class=\"title\">\n        <img decoding=\"async\" src=\"\/static\/img\/logo-htt-mini-blue.svg\">  \n        <span>Table of Contents<\/span>\n    <\/div>\n    <ul>\n        <li><a href=\"#what-is\">What is the engulfing candle pattern?<\/a><\/li>\n        <li><a href=\"#identify\">How to identify and use the engulfing candle pattern?<\/a><\/li>\n        <li><a href=\"#trading-strategy\">How to trade the engulfing candle pattern?<\/a><\/li>\n        <li><a href=\"#trading-example\">Trading example<\/a><\/li>\n        <li><a href=\"#pdf\">The Engulfing Candle Pattern Trading Strategy PDF<\/a><\/li>\n        <li><a href=\"#pros-and-cons\">The engulfing candle pattern<\/a><\/li>\n<li><a href=\"#video\">Engulfing Candle Pattern (VIDEO)<\/a><\/li>\n        <li><a href=\"#key-takeaways\">Key takeaways<\/a><\/li>\n    <\/ul>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"what-is\">What is the Engulfing Candle Pattern?<\/h2>\n\n\n\n<p>The engulfing candlestick pattern is a chart pattern that signals a possible market reversal. It is a two-candle pattern that may occur in either an uptrend or downtrend on any FX pair and time frame. Engulfing patterns come in two types: <strong>bullish and bearish<\/strong>.<\/p>\n\n\n\n<p>Traders use the engulfing candlestick pattern to trade market reversals. It may be viewed as being a precursor to the end of an uptrend or downtrend. In this way, an engulfing candle can be a bearish or bullish pattern.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"identify\">How to Identify and Use the Engulfing Candle Pattern?<\/h2>\n\n\n\n<p>Engulfing candles are easy to identify and trade in real-time. All you need to do is qualify the formation as bullish or bearish and wait for confirmation. Let&#8217;s see how you can identify the engulfing candle pattern:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Bullish Engulfing Pattern<\/h3>\n\n\n\n<p>The bullish engulfing candlestick pattern occurs when a larger positive candle follows a small negative candle. The body of the positive candle completely covers or \u201cengulfs\u201d the negative candle. A bullish engulfing pattern is pictured below.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1024\" height=\"543\" src=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bullish-engulfing-chart-pattern-trading-1024x543.png\" alt=\"bullish engulfing chart pattern, trading\" class=\"wp-image-17351\" srcset=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bullish-engulfing-chart-pattern-trading-1024x543.png 1024w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bullish-engulfing-chart-pattern-trading-300x159.png 300w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bullish-engulfing-chart-pattern-trading-768x407.png 768w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bullish-engulfing-chart-pattern-trading-1536x815.png 1536w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bullish-engulfing-chart-pattern-trading-540x286.png 540w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bullish-engulfing-chart-pattern-trading-860x456.png 860w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bullish-engulfing-chart-pattern-trading-1170x621.png 1170w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bullish-engulfing-chart-pattern-trading.png 1544w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>This formation occurs amid a downtrend.&nbsp;&nbsp;&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Bearish Engulfing Pattern&nbsp;<\/h3>\n\n\n\n<p>The <a href=\"\/chart-patterns\/bearish-engulfing-candle\/\">bearish engulfing pattern<\/a> is a two-candle formation that occurs when a larger negative candle follows a small positive candle. Thus, the body of the negative candle engulfs the positive one. Below is a picture of this chart pattern.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1024\" height=\"590\" src=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bearish-engulfing-chart-pattern-trading-1024x590.png\" alt=\"bearish engulfing chart pattern, trading\" class=\"wp-image-17352\" srcset=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bearish-engulfing-chart-pattern-trading-1024x590.png 1024w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bearish-engulfing-chart-pattern-trading-300x173.png 300w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bearish-engulfing-chart-pattern-trading-768x443.png 768w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bearish-engulfing-chart-pattern-trading-1536x885.png 1536w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bearish-engulfing-chart-pattern-trading-540x311.png 540w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bearish-engulfing-chart-pattern-trading-860x496.png 860w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bearish-engulfing-chart-pattern-trading-1170x674.png 1170w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/Bearish-engulfing-chart-pattern-trading.png 1544w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>Bearish engulfing candles develop within uptrends.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Confirmation<\/h3>\n\n\n\n<p><strong>Confirmation<\/strong> is a term used to describe the price action that confirms a defined candlestick chart pattern. In the case of the <strong>bullish<\/strong> engulfing pattern, it is a <strong>positive move<\/strong> in price that follows the large positive candle.<\/p>\n\n\n\n<p>For the<strong> bearish<\/strong> engulfing pattern, it is a <strong>negative move<\/strong> in price that follows the large negative candle.<\/p>\n\n\n\n<p>The chart below illustrates confirmation following the formation of a bullish engulfing pattern.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1024\" height=\"547\" src=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-confirmation-1024x547.png\" alt=\"bullish engulfing confirmation\" class=\"wp-image-17350\" srcset=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-confirmation-1024x547.png 1024w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-confirmation-300x160.png 300w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-confirmation-768x410.png 768w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-confirmation-1536x821.png 1536w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-confirmation-540x289.png 540w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-confirmation-860x460.png 860w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-confirmation-1170x625.png 1170w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-confirmation.png 1544w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>Traders look for confirmation when trading engulfing candles. Confirming candles add confidence to the trade and provide a market entry point.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"trading-strategy\">How to Trade the Engulfing Candle Pattern?<\/h2>\n\n\n\n<p>Engulfing candle patterns are generally intuitive, user-friendly indicators. You can apply them to the financial market in three steps.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Step 1: Enter the Market<\/h3>\n\n\n\n<p>The first step in trading an engulfing pattern is recognizing the formation in real-time. To do so, look for patterns where a larger opposing second candle follows a smaller positive or negative candlestick.&nbsp;<\/p>\n\n\n\n<p>Once identified, you are ready <strong>to enter the market on the next confirmation candle<\/strong>. To open a long position, buy above the bullish engulfing pattern; to open a short position, sell below the bearish engulfing candle.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Step 2: Set Profit Target<\/h3>\n\n\n\n<p>Profit targets are orders that reside above or below a trade\u2019s entry price. Upon the second bullish engulfing candle of the pattern forming and market entry defined, a profit target may be set.&nbsp;<\/p>\n\n\n\n<p>Profit targets are located above the buy entry for the bullish engulfing pattern. For <strong>bearish<\/strong> engulfing patterns,<strong> profit targets are placed beneath the sell entry<\/strong>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Step 3: Set the Stop Loss<\/h3>\n\n\n\n<p>After gaining confirmation of the engulfing pattern, a stop loss may be placed upon the market. Stops are typically located above or below the second candle of the formation.&nbsp;<\/p>\n\n\n\n<p>When the bullish engulfing pattern appears, the stop loss is placed beneath the long positive candle. The stop loss is placed above the elongated negative candle when the bearish engulfing pattern occurs.<\/p>\n\n\n\n<h2 id=\"trading-example\">Example<\/h2>\n\n\n\n<p>To illustrate the trading engulfing candles, refer to the <strong>EUR\/USD chart<\/strong> below. As you can see, the bullish engulfing candle pattern is present, signaling a possible buying opportunity.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"541\" src=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-trade-example-1024x541.png\" alt=\"bullish engulfing trade example\" class=\"wp-image-17349\" srcset=\"https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-trade-example-1024x541.png 1024w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-trade-example-300x158.png 300w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-trade-example-768x405.png 768w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-trade-example-1536x811.png 1536w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-trade-example-540x285.png 540w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-trade-example-860x454.png 860w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-trade-example-1170x618.png 1170w, https:\/\/howtotrade.com\/wp-content\/uploads\/2022\/04\/bullish-engulfing-trade-example.png 1544w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>The trade above is executed via the following progression:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>The bullish engulfing pattern is identified.<\/li>\n\n\n\n<li>A buy is executed at 1.1301 during confirmation.<\/li>\n\n\n\n<li>A profit target is located at 1.1347, according to a 1:2 risk vs. reward ratio.<\/li>\n\n\n\n<li>The stop loss is placed at 1.1278 beneath the second bullish candle.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"pdf\">The Engulfing Candle Pattern Trading Strategy PDF<\/h2>\n\n\n\n<p>If you need a PDF that describes how to trade the Engulfing Candle Pattern trading strategy, here\u2019s one for you:<\/p>\n\n\n\n<p><a href=\"http:\/\/The Engulfing Candle Pattern Trading Strategy PDF\">The Engulfing Candle Pattern Trading Strategy PDF<\/a><\/p>\n\n\n\n<h2 id=\"pros-and-cons\">The Engulfing Candle Pattern &#8211; Pros and Cons<\/h2>\n\n\n\n<p>Bullish and bearish engulfing candlestick patterns have a unique set of pros and cons.<\/p>\n\n\n\n<div class=\"htt-section-points\">\n    <div class=\"points pro\">\n        <p>Pros<\/p>\n        <ul>\n           <li>Engulfing patterns are readily identifiable visually.<\/li>\n<li>Both bullish and bearish engulfing candlestick patterns frequently occur on all financial market charts, on all time frames.<\/li>\n<li>Engulfing patterns can be an exceedingly profitable way to trade reversals.<\/li>\n        <\/ul>\n    <\/div>\n    <div class=\"points cons\">\n        <p>Cons<\/p>\n        <ul>\n<li>Engulfing patterns can produce false bearish or bullish reversal signals.<\/li>\n<li>On large time frames, stop losses may be extensive.<\/li>\n<li>Often precede choppy market conditions and consolidation.<\/li>\n        <\/ul>\n    <\/div>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"video\">Everything About the Engulfing Candle Pattern in One Video<\/h2>\n\n\n\n<p>You can check this video by our trading analysts on how to identify and trade the engulfing candle pattern.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<iframe title=\"How to Trade the Engulfing Candlestick Pattern Successfully [Forex Chart Patterns]\" width=\"1170\" height=\"658\" src=\"https:\/\/www.youtube.com\/embed\/z1jyFOv2o7Q?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"key-takeaways\">Key Takeaways<\/h2>\n\n\n\n<p> Here are the key takeaways you need to consider when using the engulfing patterns.<\/p>\n\n\n\n<div class=\"htt-section-highlight -keyp\">\n    <div class=\"title\">\n        <img decoding=\"async\" src=\"\/static\/img\/logo-htt-mini-blue.svg\">    \n        <span>Key Takeaways<\/span>\n    <\/div>\n    <ol>\n<li>Engulfing patterns are characterized as reversal indicators.<\/li>\n<li>Traders use engulfing patterns to trade the reversal of bullish and bearish trends.<\/li>\n<li>Confirmation lends credence to the formation and is used to enter the market.<\/li>\n<li>Engulfing patterns aren\u2019t 100% accurate, so <a href=\"https:\/\/howtotrade.com\/courses\/understanding-forex-risk-management\/forex-risk-management\/\">proper risk management<\/a> is required.<\/li>\n    <\/ol>\n<\/div>\n","protected":false},"author":2949,"featured_media":17348,"template":"","class_list":["post-17347","chart-patterns","type-chart-patterns","status-publish","has-post-thumbnail","hentry"],"acf":{"related_posts":[17354,17591,17563],"reviewer":164165},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>How To Trade The Engulfing Candle - HowToTrade.com<\/title>\n<meta name=\"description\" content=\"The engulfing candlestick pattern is a chart pattern that signals a possible market reversal coming in two types: bullish and bearish.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/howtotrade.com\/chart-patterns\/engulfing-candle\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" 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