Bullish engulfing

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

The candlestick tradition reads the second candle as sellers setting the direction for one period and buyers taking it back entirely in the next. Almost every source treats the formation as meaningful only after a decline, because the same two candles inside a range describe nothing out of the ordinary. Conventions for confirming it vary, the two most common being a close above the formation in the following period and the formation appearing at a level identified independently of it.

Mechanical tests across large samples generally find a small effect that does not survive transaction costs, while discretionary chartists reply that a formation tested without its context is not the formation they use. The disagreement is unresolved and both camps contain serious practitioners. What both accept is that the formation depends on the time frame it is drawn on: two candles on one chart are a fragment of a single candle on a slower one, so a formation present in the first may be invisible in the second.