Detecting Bullish and Bearish Engulfing Candles

Summary

The document defines a simple candlestick signal that labels a bar as bullish, bearish, or neutral. A bullish signal requires the current candle to close above its open and above the previous high, while opening below the previous low. A bearish signal applies the inverse conditions: the candle closes below its open and the previous low, after opening above the previous high. The resulting value can also be used to screen for matching instruments.

This is a rule definition, not a tested trading strategy. The document provides no market, timeframe, performance evidence, or guidance on entries, exits, position sizing, or risk controls. Its strict conditions identify candles whose full ranges engulf the prior bar, so signals may be less frequent than definitions based only on candle bodies. Traders would need to evaluate the rule in their own data and account for execution and costs before using it.

Key ideas

• The bullish rule requires a close above the prior high and an open below the prior low.
• The bearish rule reverses those price conditions.
• Bars that meet neither rule receive a neutral label.
• The signal can be used as a screening condition, but no trading results are supplied.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.