Bullish and bearish engulfing pattern
This pattern occurs when the trader is using a candlestick chart. This pattern occurs when a larger candlestick fully engulfs the smaller candlestick from the period before. This pattern usually occurs during a downtrend and is thought to signal the beginning of a bullish trend in the security.
How it works
It involves two candles, in this situation we will call them candle A and candle B. When candle B, a bullish candle is larger in size when compared to the previous bearish candle A, this is called a bearish engulfment. This is a bearish engulfment because candle B is able to fit candle A inside it plus more, therefore engulfing candle A. For candle B to engulf candle A the close price and opening price but be larger than the total size of candle A (including the high and low tails). This theory also work in reverse.
How trader us it.
Many trader use this as a buy or sell trigger indicator, due to an engulfing candle tending to be the start or the bullish or bearish trend. Counter trend traders tend to use these patterns in conjunction with other technical analysis to determine if the market is about to experience a reversal. On the other hand, trend traders tend to use this as a selling indicator, once they see engulfing candle they tend to leave the trade in case of a trend reversal.