Engulfing Candle is one of the most reliable patterns in Forex trading. It is a common part of technical analysis conducted all over the world to earn profit in Forex trade. It is formed when the latter candlestick indicator overshadows and dominates (engulfs) the first candle of the pattern.
Kinds of Engulfing Candles:
Engulfing Candles are of two kinds. These are:
- Bullish Engulfing Pattern
- Bearish Engulfing Pattern
Let’s have a look on both kinds of Engulfing Candles Patterns.
Bullish Engulfing Pattern:
Bullish Engulfing is a dual candlestick pattern that reflects a reversal. It indicates a significant change in the price movement of a currency. It occurs when a strong and dominating bullish candle is chasing a bearish candle. Thus the latter bullish candle succeeds to ‘engulf’ the first candle. That is why this candlestick is named as ‘Engulfing Candle’. Thus the traders can expect a prominent increase in the price of a currency after a downtrend. It exactly shows that reversal is on its way. It makes the trader to be prepared for a major change. Observing and analyzing the Engulfing Candles enable the Forex traders to deal with a reversal confidently. Ultimately it prevents chaos in Forex trade.
Bearish Engulfing Pattern:
Bearish Engulfing Pattern is definitely the opposite of the above mentioned Pattern. It is also a technical indicator with two candlesticks. When a bearish candle is chasing a bullish candle then the Bearish Engulfing Pattern is formed. Then the latter bearish candle succeeds to engulf the bullish candle. In such a situation you should avoid buying the currency as the market is dominated by sellers. Definitely you can expect a downtrend in this case. Analyzing the Engulfing patterns give traders some time to think about the trade and make a sound decision.