We can distinguish two primary types of engulfing patterns, each with its own set of subcategories or subtypes.
The shape of an engulfing pattern consists of two contrasting candlesticks where the second one is larger and completely envelops or "engulfs" the first one.
We can distinguish two primary types of engulfing patterns, each with its own set of subcategories or subtypes:
- Standard Engulfing Pattern
- Bullish Engulfing Pattern
- Bearish Engulfing Pattern
- Last Engulfing Pattern
- Last Engulfing Bottom
- Last Engulfing Top
1. Standard Engulfing Pattern
The standard engulfing pattern (or just "Engulfing Pattern") is the most widely recognized and frequently used type among traders.
According to the context of the market and the direction of the signal, bullish or bearish, we can identify two types of engulfing patterns:
- Bullish Engulfing Pattern
- Bearish Engulfing Pattern
Bullish Engulfing Pattern
A bullish engulfing pattern is a two-candlestick formation that appears during a downtrend. The first candle is usually a small bearish (red or black) candle, followed by a larger bullish (green or white) candle. The body of the second candle completely "engulfs" the body of the first, indicating a potential reversal to the upside.
The pattern suggests that bulls have gained control over bears, and it is often considered a strong buy signal when confirmed with other indicators.
Bearish Engulfing Pattern
A bearish engulfing pattern is a two-candlestick combination that appears during an uptrend. The first session is typically a small bullish (green or white) candle, followed by a larger bearish (red or black) candle. The body of the second candle completely "engulfs" the body of the first, indicating a potential reversal to the downside.
The pattern indicates that the bears have taken control from the bulls and is frequently viewed as a robust sell signal when corroborated by other indicators.
2. Last Engulfing Pattern
We can differentiate two types of last engulfing patterns:
- Last Engulfing Bottom
- Last Engulfing Top
Last Engulfing Bottom
The candle combination of a last engulfing bottom is the same as the bearish engulfing pattern. So, what's the difference? While the bearish engulfing pattern appears after an uptrend, the last engulfing pattern should emerge after a downtrend.
Last Engulfing Top
The last engulfing top has the shape of a bullish engulfing pattern; however, the last engulfing top always emerges after an uptrend.
