The first picture shows a bullish engulfing pattern. The market is falling. Then a white bullish real body wraps around, or engulfs, the prior period's black real body. This shows buying pressure has overwhelmed selling pressure.

The second picture illustrates a bearish engulfing pattern. Here the market is trading higher. A white real body engulfed by a black real body is the signal for a top reversal. This shows that supply has exceeded demand.

There are three criteria for an engulfing pattern:

• The market has to be in a clearly definable uptrend for a bearish engulfing pattern or downtrend for a bullish engulfing pattern, even if the trend is short term
• Two candles comprise the engulfing pattern. The second real body must engulf the prior real body. It need not engulf the shadows.
• The second real body of the engulfing pattern should be the opposite color of the first real body. The exception to this rule is if the first real body of the engulfing pattern is a doji.

Some factors increasing the likelihood that an engulfing pattern could be an important turning signal are:

• If the first day of the engulfing pattern has a very small real body (for instance, a spinning top) and the second day has a very long real body.
• If the engulfing pattern appears after a protracted or very fast move.
• If there is a heavy volume on the second real body of the engulfing pattern