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Price structure
Is one engulfing candle enough to be a reversal system?
Engulfing reversal
What it bets
The current bar's body covers the prior bar's body and closes the other way, so the short-term push has changed sides.
How the rule is written
Read the body, not the wick, unless the rule says otherwise. An upward engulfing is a current up-body that covers the prior down-body. A downward engulfing is the reverse. As a system it also needs a location, for example after a decline. Otherwise every covering bar is a signal.
When it fails
Engulfing bars are very common in the middle of a trend, and the next bar gets swallowed back by the original trend. Used on its own, follow-through is usually weak.
Do not confuse it with
An inside bar is the current bar tucked inside the prior bar. It bets on the breakout that follows. An engulfing bar is the current bar covering the prior bar. It bets that the turn has already happened.