What is the logic behind the engulfing pattern?

For example, consider a bullish engulfing pattern, occurring within a downtrend. Apparently, this shows that "buying pressure has overwhelmed selling pressure". What I don't understand is why the second candlestick has to engulf the first candlestick? Surely Any strong move in the opposite direction of the trend should be as valid as an engulfing pattern?

For example, consider the following scenarios:



Figure A is a bullish engulfing pattern which, apparently, shows that buying pressure has overwhelmed selling pressure. Figure B is not an engulfing pattern, but surely it also shows buying pressure overwhelming selling pressure?

when figuring dont you think bar open should match with last bar close?

Technically, yes. However, in my limited experience, it seems that the market slips sometimes - particularly on higher timeframes.

figures make no sense.those might figured better.green pips

Maybe can use a real situation like NZD/USD daily chart :


figureA shows it will go down further as green is still not over the highest point of red.
figureB shows green has already passed the the point of reversal.

The only "logic" is exactly what you give it. Many interpret this as stated here, buying overwhelming selling. However a single candle does not a reversal make. This formation does show where buying interest may be located - at least in the short term. Several of the above chart examples show engulfing patterns in various areas of the larger move. Some signal an end to a retracement others signal a range break. All show where the buyers - en mass- are stepping into the market.

So how does one use this information to his/her advantage? Only you can determine the significance or lack thereof. Keep in mind that none of this has any "logic" or significant except what YOU give it.

I would say neither A or B is an engulfing pattern,
but maybe many wont agree with me.
a real engulfing candlestick pattern, is according to me, really a small tiny broadening wedge, and that is the logic behind it,
because let's just face it, a candle is just compressed data.

as you probably know, a broadening wedge is a reversal pattern, especially if it is in a slanting formation. so if it is found in an uptrend,
it would be giving a strong clue that the trend could be in danger.
personally I don't trade them because I don't want to go against a strong trend etc,
I just use them as clues or confluences, non slanting engulfers could just be continuation patterns,
but it indicates the volatility have encreased.

I have seen many explanations on how an engulfing pattern should look,
my take on it, is that the engulfing candles high and low, must engulf the previous candles high and low,
the logic behind this is that it's the only way to know it is a tiny broadening wedge, even if it didn't brake out yet,
if this criteria is not met, then it could just be anything, a shift in volatility? yes, manipulation? just a retrace?
a broadening wedge is a build up of energy inside a closed container, about to burst open,
thats what we want. this is my personal take on engulfing patterns and how they should look.
I believe another name for this pattern is "outside day" maybe it is another one,
but they fill the same purpose.

no matter what your criteria for this pattern is,
it still would be a pattern not broken out yet.
so to trade it, you must have confirmation on the lower time frames such as a brakeout,
the slanting of the pattern is important, sometimes difficult to see,
then zoom down to a lower timeframe and draw your lines.

the pattern is bearish in a uptrend if it's slanting up, and bullish in a downtrend if it slanting down,
if there is no slant, then you need to know where you are in the trend, high or low,
then trade them as continuation if they brake out on the right side.
the odds are they are going to brake in the desired direction more times than they don't.
wow this became more than I hoped for, I hope anyone get helped from it, cheers!

If you keep searching for the logic behind TA methods you might find that there is none, or the logic contradicts the logic behind other methods. I agree with you .... a reversal is a reversal, regardless of where the OHLC levels happen to fall and what pretty patterns they happen to print on your charts. In a lot of cases you may find that you can magically transform pattern A into pattern B and vice versa, just by switching to the next timeframe. It doesn't mean the pattern is more or less relevant, it's exactly the same thing.

Price patterns of any kind are meaningless.

Don't get obsessed with the candle's open and close. This is irrelevant. I'll prove it to you.......

Find what you believe to be a significant 'next candle open/close' on the H1 time frame. Mark it.

Now go to the H4 or Daily time frame. Where's your significant open/close now? Exactly!...... Lost inside a larger candle and not relevant at all. John Bollinger says something very similar in one of his webinars, and has even programmed candlesticks with no wicks (just the body) as he feels, as I do, that the open/close thing is just a distraction.

There is no significance to a candle open/close, try a line chart for a while to wean yourself off candlesticks or at least to test if I'm on to something here.

As always, feel free to disagree.

Patterns are not a panacea. Sometimes there is a match, when it works. And there are many theories and signals that take this into account, but the market can always cheat. This is not something that can be counted.

The difference between close price and open price is called price gap and it is more commom in less liquid markets then forex which operates 24/7 and has enourmous liquidity pool. You usually get a gap in forex on start of monday trading, because some bigger trades are executed during the weekend too.

For me both patterns meet criteria of engulfing pattern. In my eyes, figure B is even more bullish then figure A. Price probably first close the bullish gap and then shoot up.