Double Candlestick Patterns
Now that we've learned about Single Candlestick Patterns in our previous lesson, it is time to move on to Double Candlestick Patterns.
What are Double Candlestick Patterns?
Double candlestick patterns are candlestick patterns that consists of two candlesticks. They can be classified as trend reversal patterns or as trend continuation patterns, though there are far more double candlestick reversal patterns than double candlestick continuation patterns, and they can be bullish or bearish. Sometimes a double candlestick pattern can include a single candlestick pattern, and sometimes a double candlestick pattern can be found in the formation of triple candlestick pattern.
Double candlestick patterns should only be taken into consideration if they appear in an exiting trend. If they form in a non-trending market, they should be ignored.
Common Double Candlestick Patterns
The Engulfing pattern
The Engulfing pattern is a major trend reversal pattern that consists of two candlesticks of opposite color. It is similar to the Outside Day reversal pattern in Western charting theory and can be either bearish or bullish, depending on the trend in which it appears.
The first candlestick in the pattern is a relatively short candlestick with a short real body that closes in the direction of the current trend. The second candlestick is a larger candlestick that gaps away from the first candlestick's close in the direction of the trend but then reverses direction to close beyond the first candlestick's open price, taking an opposite color to the first candlestick. The second candlestick's real body thus completely encloses or engulfs the first candlestick's real body. The shadows are not taken into consideration in this pattern; therefore, the second candlestick need not engulf the shadows of the first candlestick.
The Engulfing pattern visually shows that the opposing forces have gained control of the market as the second candlestick in the pattern is much larger and much more dramatic than the first candlestick, and it moves against the current trend. It therefore, warns of a possible end to the current trend.
Further Reading
- The Engulfing Pattern in Candlestick Patterns
- The Trend Reversal Patterns in Candlestick Patterns
- The Trendlines in Chart Patterns
The Harami pattern
The Harami pattern has the inverse formation to the Engulfing pattern. It is also a trend reversal pattern that consists of two candlesticks and but is not as significant as the Engulfing pattern. Here the first candlestick is the larger candlestick that encloses the smaller second candlestick, making it quite similar to the Inside Day pattern in Western charting theory. The pattern can be a bullish if it appears at the end of a downtrend, or it can be a bearish if it appears at the top of an uptrend.
The name of the pattern, harami is derived from the Japanese word for pregnant, with the first candlestick in the pattern referred to as the mother as it encloses or engulfs the real body of the second, much smaller candlestick, creating the appearance of a pregnant mother.
The first candlestick should be supportive of the current trend and should be a relatively large candlestick. The much smaller second candlestick opens and closes within the real body of the first candlestick. It is therefore enclosed or engulfed by the first candlestick. It should also close against the current trend, giving it the opposite color to the first candlestick. The second candlestick in the Harami formation may take the form of a Spinning Top or a Doji, which are single candlestick patterns. When the second candlestick is a Doji, the pattern is called a Harami Cross, which is a much more significant signal than the regular Harami pattern.
Further Reading
- The Harami and Harami Cross Patterns in Candlestick Patterns
- The Spinning Top Pattern in Candlestick Patterns
- The Doji in Candlestick Patterns
- The Trend Reversal Patterns in Candlestick Patterns
- The Trendlines in Chart Patterns
- Single Candlestick Patterns in Candlestick Chart Analysis
The Dark Cloud Cover pattern
The Dark Cloud Cover pattern is a bearish trend reversal pattern, making it a top reversal pattern that can appear in an existing uptrend. It warns of a shift in sentiment in the market and suggests that the uptrend could be coming to an end. The Dark Cloud Cover pattern consists of two candlesticks with opposite colors. The first candlestick in the pattern must be a large candlestick with a large real body that is supportive of the current uptrend. The second candlestick then gaps up to open above the real body of the previous candlestick but then reverses direction to become a bearish candlestick that closes below the mid-point of the first candlestick's real body, reflecting the shift in sentiment. The deeper the second candlestick penetrates the real body of the first candlestick, the more significant the pattern becomes. The pattern also becomes more significant if the two candlesticks that form it are Marubozu candlesticks.
Further Reading
- The Dark Cloud Cover Pattern in Candlestick Patterns
- The Trend Reversal Patterns in Candlestick Patterns
- The Trendlines in Chart Patterns
- Basic Candlestick Patterns in Candlestick Chart Analysis
The Piercing Line pattern
The Piercing Line pattern is the bullish counterpart to the Dark Cloud Cover pattern, macking it a bottom reversal pattern that can appear in an existing downtrend where it warns of a shift in sentiment, suggesting that the downtrend may be coming to an end. The Piercing Line pattern again consists of two candlesticks with opposite colors. The first candlestick must be supportive of the current downtrend with a large real body. The second candlestick then gaps down from the real body of the previous candlestick to open below the low of the previous candlestick but then reverses direction to become a bullish candlestick that closes above the mid-point of the first candlestick's real body.
The deeper the second candlestick pierces, or penetrates, the real body of the first candlestick, the more significant the pattern becomes. The pattern also becomes more significant if the two candlesticks that form it are Marubozu candlesticks.
Further Reading
- The Piercing Line Pattern in Candlestick Patterns
- The Dark Cloud Cover Pattern in Candlestick Patterns
- The Trend Reversal Patterns in Candlestick Patterns
- The Trendlines in Chart Patterns
The Thrusting Line pattern
The Trusting Line pattern is an underdeveloped version of the Piercing Line pattern where the second candlestick has failed to penetrate beyond the mid-point of the first candlestick. Like the Piercing Line pattern, the Trusting Line pattern consists of two candlesticks of opposite colors. The first candlestick is supportive of the current downtrend with a large real body. The second candlestick then gaps down from the real body of the previous candlestick to open below the low of the previous candlestick but then reverses direction to become a bullish candlestick that closes just below or at the mid-point of the first candlestick's real body. The failure of the second candlestick to close above the mid-point of the first candlestick makes it a weak signal; so weak that it is considered a trend continuation pattern rather than a trend reversal pattern!
The Trusting Line pattern is, in fact, one of three an underdeveloped versions of the Piercing Line pattern. The other two are the In-Neck pattern and the On-Neck pattern. These three patterns differ in the degree of penetration into the real body of the first candlestick.
Further Reading
- The Thrusting Line Pattern in Candlestick Patterns
- The Piercing Line Pattern in Candlestick Patterns
- The In-Neck Pattern in Candlestick Patterns
- The On-Neck Pattern in Candlestick Patterns
- The Trend Continuation Patterns in Candlestick Patterns
- The Trend Reversal Patterns in Candlestick Patterns
- The Trendlines in Chart Patterns
The Tweezer Top and Tweezer Bottom patterns
The Tweezer Top and Tweezer Bottom patterns are minor trend reversal patterns that consists of two candlesticks with the same high-price level, or the same low-price level. It is the only candlestick pattern where the highs or lows are the defining characteristic rather than the real body or the shape of the candlesticks. The two candlesticks should, however, have opposite colors with the first confirming the current trend and the second reversing direction and indicating weakness in the trend.
The pattern is more reliable when the first candlestick is has a relatively large real body while the second candlestick has a relatively short real body. It is also more reliable when the Tweezer pattern forms or includes a second reversal pattern, such as an Engulfing pattern or a Piercing Line pattern with identical highs or lows.
If the Tweezer pattern appears in an uptrend and has the same highs, it is called the Tweezer Top pattern; and if it appears in a downtrend and has the same lows, it is called the Tweezer Bottom pattern.