The engulfing pattern is made of two bars on a price chart. The second candlestick is larger than the first, so that it completely covers or 'engulfs' the length of the previous one. It is used to indicate a market reversal.
This pattern can be bullish or bearish depending on whether it occurs at the end of an uptrend or a downtrend.
A bullish engulfing pattern appears at the bottom of a downtrend. It is formed of a short red candle next to a much larger green candle and indicates a spike in buying pressure. It is frequently interpreted as a signal to buy the market, or "go long," in order to benefit from the market reversal.
The bearish engulfing pattern is simply the opposite of the former. It is made of a short green candle that is completely covered by the following red candle, and it indicates a spike in selling pressure. It is often interpreted as a signal to start trading short.
Engulfing candlestick patterns are a part of technical analysis and can be used to spot trend reversals. In an extremely volatile market, they can offer prompt signals as to where the market price may move.
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