A bullish engulfing candle opens at or below the prior close and closes above the prior open — its body completely swallows the previous candle's body. Mechanically that means every seller from the prior candle is now underwater, and their exits (buying back) add fuel to the new direction.
Grading an engulfing signal
- After a real leg: an engulfing candle at the END of a decline is a reversal signal; in the middle of chop it's nothing.
- Size relative to recent candles: engulfing the last THREE bodies is a statement; barely covering one is bookkeeping.
- Follow-through matters: the next candle should not immediately give back half the engulfing move. If it does, treat the signal as failed.
Engulfing + level + exhaustion tells (see Momentum lesson) stacked together is a complete reversal thesis. Any one alone is a coin toss with a story attached.