Engulfing pattern in gold trading
An engulfing pattern is a candle whose body fully covers the previous candle's body in the opposite direction, a two-bar sign of a possible reversal in gold.
Also called Bullish engulfing, Bearish engulfing, Engulfing candle, Outside bar
An engulfing pattern is a two-candle formation. A bullish engulfing has a down candle followed by an up candle whose body opens at or below the prior close and closes above the prior open. A bearish engulfing is the mirror. Some traders require the whole range, wicks included, to be engulfed (an outside bar).
How it applies to gold trading
Engulfing candles show a sharp shift in control within one period. They are most useful at meaningful places: a bullish engulfing at support after a sell-off, or a bearish engulfing after a sweep of an equal high. On gold, engulfing candles frequently form at session opens and after news; those formed on scheduled data can reflect a single spike rather than a real change in order flow.
A common entry is a break of the engulfing candle’s high (for longs), with a stop below its low. The size of the candle matters: a very large engulfing candle can make the stop too wide for a good risk-reward ratio.
Worked example
Example (hypothetical numbers): at a support zone near 3,990 a 1-hour candle falls from 4,000 to 3,992. The next opens at 3,991, dips to 3,987 and closes at 4,006, engulfing it. A trader buys a break of 4,007 with a stop at 3,985 ($22) and a target at 4,050, 2R.
A common mistake
Trading engulfing candles in the middle of a range, where they have no special meaning.
See also: Candlestick, Pin bar, Inside bar, Support and resistance.
Frequently asked questions
Is the engulfing pattern reliable on gold?
It works better at key levels and after a clear move into them. In ranges or on news spikes it produces many false signals.
What is the difference between an engulfing candle and an outside bar?
An engulfing candle covers the prior body; an outside bar covers the prior candle’s entire range, including wicks.
Where do I put the stop on an engulfing trade?
Commonly just beyond the engulfing candle’s low for longs or high for shorts, with a small buffer for spread.