Engulfing is a reversal candlestick pattern that gives an indication that the current trend is changing direction. And traders can completely use this pattern in predicting reversals.

The image below is an engulfing candlestick pattern, with the first candle having a shorter body than the second candle. The market was previously in a downtrend, after meeting this pattern combined with the double bottom pattern, it reversed strongly. 


In the H4 chart of the AUDUSD chart below you can see that the engulfing candlestick pattern is bearish, but the price only pulls back a little and then resumes the uptrend:


A reliable engulfing candlestick pattern to identify trend reversals:
  • Formed at the end of the trend
  • Candles are formed against that trend
  • And confirmed by another technical indicator or best a pattern forming at a key support resistance level
When these 3 conditions are met, the possibility of reversing the previous trend is very high.

This pattern doesn't make much sense in a sideways market. Emgulfing should be formed at the end of a strong trend.

Before trading the pattern, it is best to wait for the confirmation. This confirmation can come from technical indicators or other chart patterns. However, if engulfing is formed at an important top or bottom, a key support resistance level, a round number zone, then you can enter the market without any other confirmation.

The lower the timeframe, the more unreliable this pattern appears. Because the frequency of the pattern appearance will be more accompanied by many signals from the model will increase. So you limit trading the pattern to the low time frame.

The image above is an example of a bearish engulfing candlestick pattern that appeared at the previous support level. The special feature that makes this candlestick pattern a reliable reversal signal is that it satisfies all three of the above conditions:

The pattern forms at the end of a strong downtrend. Formed at a strong support on the W1 frame, this is the deciding factor that the pattern becomes much more valuable. There is a divergence on the Stochastic indicator as a confirmation signal for the pattern.

Likewise you can look for engulfing signals this way can catch trend reversals more accurately.

In the first picture of the article, the engulfing pattern appeared at the previous support level, and there was a double bottom pattern appearing as a confirmation signal for the pattern.