What it means
A bullish engulfing after a decline shows buyers overwhelming sellers in one period; a bearish engulfing after a rally is the mirror.
In practice
An engulfing candle is a sudden shift of control inside two periods: one side was ahead, and the other side took back all of that ground and more by the close. Traders look for it at the end of a pullback or at a level they already care about.
It is often used as an entry trigger, with the stop beyond the far end of the engulfing candle and the trade taken in the direction of its close.
What to watch for
A big engulfing candle means a distant stop, so the position has to be smaller. In the middle of a range the pattern shows up often and fails often; location decides its value.