3.22 Candlestick Patterns – Two to Tango!

 

As we said, candlestick patterns may appear as singles, in pairs or as trios. We just looked at the single loners. But you know, it takes two to tango, so let’s see how two candles, dancing together, tell us about the market and where it’s headed!

 

Bullish and Bearish Engulfing

 

Engulfing candles are a pair of candles that indicate an impending market reversal, which may be bullish or bearish. 

Engulfing bar

 

Bullish Engulfing

 

If the pattern appears at the end of a downtrend it would comprise a smallish red body candle, followed by a much longer green body candle which completely engulfs (is more on either side) the body of the previous, red candle. This is the bullish engulfing candle on the left. It shows that bulls have taken complete control of the market action as opposed to the small and weak price move by the sellers in the previous session.

 

Bullish engulfing pattern on Forex trading chart.

Another example of bullish engulfing during a downtrend. 

 

Some careful observations need to be made before you trade with bullish engulfing. These are as follows:
 

  • Only trade with the pattern when it is during an downtrend which has suddenly started showing some signs of weakening. Many times you will see this pattern to emerge during sideways movement - do avoid taking a position during such time.

 

  • Check the couple of red candles before the pattern - if the previous one or previous to previous has suddenly become shorter than the others then only go for a position. The shortening of red candles indicates a loss of momentum of the trend. If the trend is going with strong momentum and a bullish engulfing takes place, it may fail to result into reversal of the trend.

 

Bearish Engulfing

 

If this pattern appears at the end of a rally in prices it is likely to have a smallish green body, followed by a much longer red body candle which completely engulfs the body of the previous green candle. This is the bearish engulfing candle on the right. It shows that bears have taken complete control of the market action as opposed to the small and weak price move by the buyers in the previous session.

 

Bearish engulfing pattern on Forex trading chart.

 

Similar to the bullish engulfing a few Words of caution for trading with bearish engulfing:
 

  • Only trade with the pattern when it is during an uptrend which has suddenly started slowing down. Avoid trading with this pattern when it appears during a sideways move.

 

  • Check the body size of previous couple of green candle to see if they have become smaller than the previous ones. This would tell you if the uptrend has started losing momentums and that will make the bearish engulfing more reliable.

 

Bullish and Bearish Tweezers

 

You wanna ask what tweezers are doing in Forex trading? Well, don't you want to pick up profits when you trade? And that's what tweezers are meant for - picking!  Aren’t they? So why not use them to pick some money out of the game?

 

A world of caution... well, no, let's call it just information. Tweezers candlestick pattern does not appear very often on trading charts. But then, when it appears, it tends to keep up its promise for reversal.

 

What does tweezers pattern look like and what they imply?

 

Well, let's not waste words here as it is quite simple:

 

Bullish Tweezers

 

During a downtrend a tweezers pattern would have a small bodied red candle followed by a green candle of same short body size. Both the candles will have long bottom shadows which are again equal in size - and yes, with no or insignificant upper shadows or wicks.

 

Translation in psychological language - The red candle is small signifying some loss of momentum of the bearish trend and the long bottom shadow indicates the fear for downside. Then comes the green one saying yes, the bearish sentiments may be reversing. This candle too has a long bottom shadow indicating the fear further downward moves. The same size of bottom wicks or shadows also mean that the same support level is holding good. So we have a combination of indications that the downtrend may reverse to bring an uptrend and a signal to you that you can go in for a long position.

 

Bullish Tweezers pattern on Forex trading chart.

 

Bearish Tweezers 

 

During an uptrend a tweezers pattern would have a comparatively short red candle followed by a green candle of same short body size and both the candles will have long upper wicks or shadows of equal size. The bottom shadows will either be missing or will be very short and insignificant. The pattern is exactly opposite to a bullish tweezers pattern. The psychological reading of this pattern also becomes opposite to the bullish tweezers. The bearish tweezers signals a short-selling opportunity.

 

Bearish tweezers pattern on a Forex chart.

  

  

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