Bearish engulfing

Two adjacent candles make the formation. The first closes above its open, giving it a rising body. The second opens at or above the first candle's close, closes at or below the first candle's open, and its body therefore spans the whole of the first body. Definitions are stated on bodies and conventionally ignore the wicks, which is why the pattern belongs to candlestick charts rather than to bar charts, where no body is drawn.

The reading the candlestick tradition offers is that buyers set the direction for one period and sellers reversed it entirely in the next, so control of the period changed hands. Almost every source treats the formation as meaningful only after a run of rising prices, since the same two candles inside a range describe nothing unusual. Conventions for confirming it vary: a close below the formation in the following period, or the formation appearing at a level identified independently of it, are the two most common.

How much the formation is worth is genuinely disputed. Tests that apply it mechanically across large samples generally find a weak effect that does not survive transaction costs, while discretionary chartists reply that a pattern tested without its context is not the pattern they use. Both positions are held by serious practitioners and neither has settled the argument. What is not disputed is that the formation is time frame dependent: two candles on one chart are a fragment of a single candle on a slower one, so a formation present in the first may not exist in the second.