What is the Engulfing Pattern?
The Engulfing Pattern is a type of candlestick pattern that signals a potential reversal in the market, indicating either a top or a bottom. It consists of two adjacent candlesticks of opposite colors; the body of the latter candlestick must completely engulf the body of the former one.
Types of Engulfing Patterns
- During a downtrend, when the market is near its low, and the downward momentum is weakening, the appearance of a candlestick that engulfs a previous black one with a white one indicates a Bullish Engulfing Pattern. This pattern often signifies the end of the downtrend, marking a crucial reversal point.
- Conversely, in an uptrend near its peak, when the upward momentum is fading and a black candlestick engulfs a previous white one, it is identified as a Bearish Engulfing Pattern. This pattern is the opposite of the Bullish Engulfing Pattern and suggests the end of the uptrend, signaling the beginning of a downtrend.
Difference between the Engulfing Pattern and the Harami Pattern
Although both the Engulfing and Harami Patterns are candlestick formations, they differ in their graphical patterns and implications. The Harami Pattern features a candlestick formation where the later smaller body is contained within the range of the previous larger body, resembling a pregnant woman, hence the name Harami.
