Chart Patterns
Engulfing Pattern
A two-candle pattern where the second completely covers the first.
Full Definition
An engulfing pattern is a two-candle reversal pattern where the second candle's body completely engulfs the first candle's body. A bullish engulfing has a green candle engulfing a red candle after a downtrend. A bearish engulfing has a red candle engulfing a green candle after an uptrend. The larger the engulfing candle, the stronger the signal.
Example
After a downtrend, EUR/USD forms a small red candle. The next day forms a large green candle that completely covers the previous day's body. This bullish engulfing pattern signals potential trend reversal.
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