An engulfing candle is a two-candle reversal signal. It occurs when the body of a candle completely covers, or "engulfs," the body of the candle before it.
On the left, a green body covers the prior red body. On the right, a red body covers the prior green body. Only the bodies decide whether either pair qualifies; the wicks can fall anywhere.
Every candle has two parts:
The Body: The range between the Open and the Close.
The Wicks: The thin lines extending to the High and the Low. These indicate intraday prices that were rejected.
Core Principle
An engulfing candle is defined strictly by candlestick bodies. The wicks (highs and lows) are completely ignored when identifying whether a candle qualifies.
How Engulfing Candles Are Detected
To scan candlestick patterns across thousands of historical bars, the rules have to be precise and consistent. The system checks four required mathematical conditions at the same time.
Mathematical Qualification Rules
Bullish Engulfing Qualification Rules
Prior Bar Direction: Close(t−1) < Open(t−1) [Prior bar was RED]
Current Bar Direction: Close(t) > Open(t) [Current bar is GREEN]
Lower Body Boundary: Open(t) ≤ Close(t−1) [Opens at or below prior C]
Upper Body Boundary: Close(t) ≥ Open(t−1) [Closes at or above prior O]
Bearish Engulfing Qualification Rules
Prior Bar Direction: Close(t−1) > Open(t−1) [Prior bar was GREEN]
Current Bar Direction: Close(t) < Open(t) [Current bar is RED]
Upper Body Boundary: Open(t) ≥ Close(t−1) [Opens at or above prior C]
Lower Body Boundary: Close(t) ≤ Open(t−1) [Closes at or below prior O]
How Traders Use It
Bullish continuation
In an uptrend, price pulls back for a short time. A bullish engulfing candle appears, showing that the pullback has ended and buyers are stepping back in.
Bearish continuation
In a downtrend, price rallies briefly. A bearish engulfing candle forms, showing that the bounce has failed and sellers are taking control again.
Risk Management & Trade Mechanics
Entry: The trade can be entered when the engulfing candle closes, or when price breaks the high (for bullish) or low (for bearish) of the engulfing candle in the direction of the trend.
Stop Loss:
Standard stop: Place it just beyond the low of a bullish engulfing candle, or just beyond the high of a bearish engulfing candle.
Conservative stop: Place it beyond the recent swing high or low for more room against normal price swings.
Tool Glossary
The Basics
Candle (OHLC)
One bar of price data: the open, high, low and close. This tool uses the open and close to measure the body. The high and low are the wicks, and they do not decide whether a pair qualifies.
Session
One trading day. Time in this tool is measured in sessions rather than calendar days, so weekends and holidays are skipped.
The Patterns
Bullish Engulfing
A green candle whose body completely covers the prior red candle's body. Buyers took back the previous session's decline inside one bar. The two candles have to be opposite colors, or it does not qualify.
Bearish Engulfing
A red candle whose body completely covers the prior green candle's body. Sellers took back the previous session's gain inside one bar. Same rule: opposite colors, bodies only.
Trading
Market Close
4:00 PM ET, when the regular session ends. One way to enter is when the engulfing candle closes, so the pattern is already complete.