The Engulfing Pattern
Bullish and Bearish Engulfing
The engulfing pattern is the inverse of the harami pattern with the exception that the candlesticks that make up the pattern cannot be the same color. It is similar to the outside reversal pattern. Like the harami pattern, the engulfing pattern consists of two candlesticks with the first candlestick being a relatively short candlestick with a short real body and the second being a large candlestick with a big real body that engulfs the real body of the first candlestick. The engulfing pattern can be either bearish or bullish, depending on its location on the price chart. In addition, the colors of the candlesticks are significant.
Firstly, the engulfing pattern is a trend reversal pattern and must therefore appear in an existing trend. The pattern is more reliable if it appears at or near a support or resistance line, or a trendline. Secondly, the colors of the candlesticks are important. In an uptrend, the first candlestick in the pattern must be light indicating that it closed higher than its open price. The second, larger candlestick must then be dark, indicating that its close was lower than its opening price. The small real body of the first candlestick indicates a degree of indecision and uncertainty about the uptrend. Then large body of the second candlestick indicates that supply has exceeded demand and that the onset of a down trend is very possible. Conversely, in a down trend, the first candlestick in the pattern must be dark in color indicating that it closed lower than its open price. The second, larger candlestick must then be light, indicating that it closed higher than its opening price. The small real body of the first candlestick indicates a degree of indecision and uncertainty in the down trend and the large body of the second candlestick indicates that demand has exceeded supply and that the onset of an uptrend is very possible. Thirdly, the length of the first candlestick's real body is significant as a smaller real body implies greater indecision and uncertainty. Fourthly, volumes on the second candlestick should be higher than on the first.
The Hanging Man and Hammer candlestick patterns are related trend reversal patterns that may appear at the end of an uptend or downtrend respectively. This is a single candlestick pattern that with a short real body, little or no upper shadow and a long lower shadow that must be at least twice as long as length of the real body. The color of the candle is not import, only its location in the current trend.
The Hammer pattern is called a takuri in Japanese, which means testing the water for its depth. This is the bullish version of the pattern. A bearish ...
Bullish Harami Pattern
'Harami' is an old Japanese word that means pregnant and describes this pattern quite well. The harami pattern consists of two candlesticks with the first candlestick being the mother that completely encloses the second, smaller candlestick. It is a reversal candlestick pattern that can appear in either an uptrend or a downtrend. When the second candlestick is a doji, the pattern is called a harami cross and is more significant than the normal harami pattern as the doji's lack of a real body indicates great indecision and uncertainty.
When the harami pattern is ...
The Evening Doji Star
Star patterns are trend reversal patterns that consist of three candlesticks, with the middle candles stick forming the star. A star is a candlestick with a short real body, like a doji or a spinning top, that gaps away from the real body of the preceding candlestick. There are three basic star patterns: the morning star, which appears in a downtrend; and the evening star and the shooting star, which appear in an uptrend.
The morning star and the evening star have a doji or a spinning top as the second candle...
The Tweezers Top and Tweezers Bottom patterns are minor trend reversal patterns that consist of two candlesticks with the same approximate high or the same approximate low respectively. The two candlesticks should have alternating colors with the first confirming the current trend and the second indicating a weakness in the trend. The reliability of these patterns increase when the first candlestick is has a large real body while the second candlestick has a short real body.
In the Tweezers Top pattern, the first candlestick should be a bullish candlestick with a ...
Continuation patterns indicate that there is a greater probability of the continuation of a trend than a trend reversal.. These patterns are generally formed when the price action enters a consolidation phase during a pre-existing trend. During the consolidation phase, the trend appears to change; however, the continuation of the preceding trend is more probable.
Some of the common continuation patterns include the cup and handle pattern, flags and pennants, symmetrical triangles, ascending triangle and desc...
Reversal patterns mark the turning point of an existing trend and are good indicators for taking profit or reversing your position. Generally, trend reversal patterns indicate that a support level in a downtrend or a resistance level in an uptrend will hold and that the pre-existing trend will start to reverse. These patterns allow you to enter early in the establishment of the new trend and are usually result in very profitable trades.
The common reversal patterns include the double tops and double bottoms, triple tops and triple bottoms, broadening tops and broadening bottoms, ...