Granthara04.03.04Bullish and bearish engulfing

Every price in Part 04 comes from an unnamed vegetable market and is a teaching example. Nothing here is a quote, a recommendation, or a record of any listed company.

04.03.04 · Bullish and bearish engulfing

PreviouslyA candle permits a story; it does not prove one.

One body swallows the one before it.

Onion prices have slipped for a week. Thursday is another small, tired day — first bid ₹30, last bid ₹29.50. On Friday the auction opens lower still and then does not stop, and by the bell Lakshmi's second board covers every price the first one managed.

Everything so far was a relationship inside one board. This is the first one between two.

Updated

2
boards, and one relationship measured across them
Part 04 · Reversal Patterns
  1. 04.03.01 Doji family: standard, long-legged, dragonfly, gravestone
  2. 04.03.02 Hammer and hanging man
  3. 04.03.03 Inverted hammer and shooting star
  4. 04.03.04 Bullish and bearish engulfing
  5. 04.03.05 Harami and harami cross
  6. 04.03.06 Piercing line and dark cloud cover
  7. 04.03.07 Morning star and evening star
  8. 04.03.08 Tweezer tops and bottoms
  9. 04.03.09 Doji stars and the abandoned baby
  10. 04.03.10 Three inside up and three inside down
  11. 04.03.11 Three outside up and three outside down
  12. 04.03.12 Tristar, two crows, and the upside-gap variant
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Learn

A relationship that needs two boards

Every measurement in chapter 04.01 lived inside a single session: how far it travelled, what it kept, where it finished. Chapter 04.02 named regions of one of those numbers.

Engulfing is the first idea in Part 04 that cannot be seen on one board at all. It is a relationship between Thursday's body and Friday's, and neither board on its own contains it.

The relationship is containment: Friday's body covers the whole of Thursday's, top and bottom, and closes on the other side of it. Thursday ran ₹30 down to ₹29.50. Friday ran ₹29.20 up to ₹30.30 — under the bottom of Thursday's body and over the top of it.

See it

Stretch the second body until it covers the first

Thursday is fixed. Drag Friday's last bid and watch the name arrive — and notice exactly when.

Only the second session's last bid moves. Both highs, both lows and the whole of Thursday stay exactly where they were.

Learn

What the definition actually requires

Two things, and both of them are about bodies rather than ranges.

The second body covers the first. Its top is at or above the first's top and its bottom at or below the first's bottom. The wicks are not part of this at all — a long shadow poking past the first candle does not engulf anything.

It closes the other way. A falling body swallowed by a rising one is a bullish engulfing; a rising body swallowed by a falling one is bearish. Containment alone, closing the same direction, is not the pattern.

The second requirement is the one people drop. A big candle that covers a small one but continues in the same direction is just a big candle.

Engulfing is measured on bodies, not on ranges. A wick reaching past the previous session is not containment.

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And the part that is not on the boards

The prior trend. 04.03.02 established the rule for the whole of this chapter: a shape is a question, and where it sits is the answer.

The same two boards after a week of falling prices are called a bullish engulfing. After a week of rising prices, the mirrored pair is a bearish engulfing. Inside a flat stretch the containment is still there and the reversal name is not, because there is nothing to reverse.

So the name has two halves and only one of them is measurable on the pair. Lakshmi will tell Rahul the old traders call Friday's board an engulfing. She will not tell him what Monday does, because her board has never once told her tomorrow's price.

Thursday and Friday, measured
Thursday's body
₹30 down to ₹29.50 — ₹0.50
Friday's body
₹29.20 up to ₹30.30 — ₹1.10
Friday's bottom against Thursday's
₹0.30 below it
Friday's top against Thursday's
₹0.30 above it
Direction
opposite — falling body, then rising
₹1.10the covering body
₹0.50the one it covered
Try it

Friday's range covers Thursday's completely, but Friday's body stops just short of Thursday's open. Is it an engulfing?

Try it

Engulfing, or not?

A small falling body, then a rising body covering it top and bottom
A small rising body, then a larger rising body covering it
A small body, then a session whose long wick reaches past it
A large falling body, then a small rising body inside it
A small rising body, then a falling body covering it top and bottom

Lakshmi, closing Friday's auction"Yesterday's board fits inside today's. That is all I can see from here."

One body inside another, and a name for the order they came in. Which raises a question the next lesson answers in a single click: what if the same two boards had arrived the other way round?

Remember

Engulfing is one body swallowing the one before it and closing the other way — the first relationship in Part 04 that needs two boards to see, measured on bodies rather than ranges, and given its reversal name only by the trend that preceded it.

Everything this chapter has told you, in order

  1. 04.03.01Open and close nearly meet; shadows and context complete the picture.
  2. 04.03.02One shape, two names: the trend that came before it supplies the name.
  3. 04.03.03Flip the shape and the rule is unchanged: the trend before it supplies the name.
  4. 04.03.04Engulfing is one body swallowing the one before it and closing the other way.
Next
04.03.05 — Harami and harami cross

Next: the same two boards, in the other order.