What it is
An engulfing pattern is a two-candle reversal in which the second candle's real body completely covers the first candle's real body in the opposite direction. A bullish engulfing appears after a decline: a down candle followed by an up candle that opens below the prior close and closes above the prior open. The bearish version mirrors it after an advance.
How it works
The classic definition compares real bodies only and ignores shadows, which trips up people reading modern charts where the second candle may have a longer total range but a body that does not fully cover the first. Some implementations require engulfment of the entire range instead. Whichever rule you adopt, state it explicitly, because backtests of the two definitions produce noticeably different results on the same data.
How traders use it
The strongest instances share three traits: the engulfing candle has an unusually large range and volume relative to recent bars, it occurs at a level that already had significance, and the trend running into it was extended. Entry is typically beyond the engulfing candle's extreme, with the stop placed on the other side of the same candle.
Where it breaks down
In continuously traded markets without overnight gaps, engulfing bars occur constantly and the information content of any individual one is low. A large engulfing candle also implies a wide stop, so the risk-reward can be poor precisely when the signal looks most dramatic. Treat it as one input to a level-based decision rather than as a trigger in its own right.
Educational reference. This entry describes how a concept is defined and used. It is not investment advice, not a recommendation, and not a signal. Any rule you build from it should be tested with realistic costs before it is traded, and no historical result guarantees a future one.