An engulf is simply price action that breaks a significant level. We are interested in engulfs of supply and demand levels to confirm if higher timeframe levels will hold, and to identify possible changes in direction.
This type of price action is particularly useful for those who don't want to touch trade with limit orders straight from supply and demand levels. Waiting for the engulf of opposing levels provides a safer way to trade.
Opposing levels must be completely engulfed, not merely touched. Price must also engulf the level in a strong fashion. Creeping price action that engulfs levels are of no interest to me.
Once an engulf has been identified, you must have a supply or demand level confirming your intended direction in order to trade.
Engulf at Supply
When looking to trade short from supply, a good indication that price will fall is if a demand level is engulfed after the supply level is hit. This adds confluence to the trade.
Engulf at Demand
When looking to trade long from demand, a good indication that price will rally is if a supply level is engulfed after the demand level is hit. This adds confluence for the trade.