A bullish engulfing pattern occurs when a large green candle completely engulfs the prior red candle near the bottom of a trend. A bearish engulfing is the opposite — a large red candle swallows the prior green candle at the top. Engulfing patterns are among the most reliable two-candle reversal signals.
The second candle's body must completely engulf the first candle's body, Volume should be higher on the engulfing candle, Location matters (support/resistance zones), Three-candle inside bar variants
Bullish engulfing at a support level or demand zone, Bearish engulfing at resistance or supply zone, Volume significantly higher than recent average, Prior trend of at least 5 candles
Stop below the engulfing candle's low (bullish) or above its high (bearish), Target 1:2 risk-reward minimum, Trail stops using subsequent swing lows/highs
1H+ timeframes, with Daily and Weekly being most authoritative
Engulfing patterns that also break a key moving average add significant confluence. Check RSI for divergence to strengthen the signal.
The hammer and hanging man are single-candle patterns with small real bodies and long lower shadows (at least 2× the body). A hammer appears at the bottom of a downtrend (bullish), while a hanging man appears at the top of an uptrend (bearish). The long wick indicates that sellers pushed price down but buyers recaptured ground.
The three-line strike is a four-candle pattern where three consecutive candles move in one direction, followed by a single large candle that engulfs all three. Despite appearing as a reversal, statistical analysis shows the bullish three-line strike actually has a high probability of continuing the prior uptrend, making it a continuation signal. The bearish variant behaves similarly as a continuation of the downtrend.
Doji and spinning top candles signal indecision between buyers and sellers. A doji has nearly identical open and close prices, while a spinning top has a small body with long wicks on both sides. These patterns are most significant at the end of extended trends where they can foreshadow reversals.
Tweezers are two-candle patterns where both candles test the same high (tweezer top) or low (tweezer bottom). The first candle extends the trend and the second candle reverses. The matching highs/lows create a visual 'tweezers' shape indicating a rejection level.