Forex Glossary

Engulfing Pattern

              Engulfing Pattern

An engulfing pattern is a technical analysis pattern that can be used to identify potential reversals in the forex market. It occurs when the body of a candlestick fully engulfs the body of the previous candlestick. There are two types of engulfing patterns: bullish and bearish engulfing.

Bullish engulfing; A bullish engulfing pattern is formed when a bearish candlestick is followed by a bullish candlestick that completely engulfs the previous candle. The second candle’s body must fully contain the first candle’s body. This pattern typically indicates a potential shift in momentum from bearish to bullish, and it can be used as a signal to enter a long position. Keep in mind that this pattern should be used in conjunction with other technical indicators to confirm a trend reversal. 

Bearish Engulfing; The bearish engulfing pattern is the opposite of the bullish engulfing pattern. It’s formed when a bullish candlestick is followed by a bearish candlestick that completely engulfs the previous candle. The second candle’s body must fully contain the first candle’s body. This pattern typically indicates a potential shift in momentum from bullish to bearish, and it can be used as a signal to enter a short position.

What does Engulfing Patterns Tell Traders 

The pattern can be interpreted as a signal that the market is about to reverse direction. When a bullish engulfing pattern is spotted, it may indicate that the market is about to turn bullish. When a bearish engulfing pattern is spotted, it may indicate that the market is about to turn bearish. 

A bullish engulfing pattern usually indicates that the market has reached a bottom and is ready to reverse to the upside. This is because the pattern shows that there is more buying pressure than selling pressure. In addition, the pattern suggests that the bears have lost control of the market, and the bulls are now in charge. As a result, a bullish engulfing pattern can be seen as a sign of strength and buying opportunity.

A bearish engulfing pattern is the opposite of a bullish engulfing pattern. It’s formed when a bearish candlestick completely engulfs a previous bullish candlestick. This pattern indicates that the bears have taken control of the market and are driving prices lower.

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