✦ Study Material — Page 2

Candlestick Patterns

Master two-candle reversal patterns — Engulfing, Piercing & Dark Cloud Cover — to trade smarter at key market turning points.

Reversal Patterns

5

Bullish Engulfing

Bullish Reversal
Bullish Engulfing Candlestick Pattern

A Bearish engulfing pattern is a reversal candlestick pattern which is Bearish in nature and appears at the end of the uptrend trend.

The Bearish Engulfing pattern has exactly the opposite functions compared to the Bullish Engulfing. It occurs when a small Bullish candle is engulfed by a large Bearish candle.

The first candle is a green Bullish candle and the second candle is the reversal Red candle. When a Bearish Engulfing candle forms at the end of a downtrend, the reversal is much more powerful.

Criteria of Taking Trades

  • The body of the second day candle should completely engulfs the real body of the first day candle.
  • The prices should be in a definable down trend.
  • The body of the second candle is opposite color (white/red) of the first candle.
  • The greater the open gaps down from the previous close, the greater the probability of a strong bullish signal.
  • The Bullish engulfing candlestick pattern should be formed at the support zone.

Note

Before placing any Buy order, you have to check the support line by using horizontal support trend line etc. & over sold bought zone by using the indicators RSI, Stochastic etc. when you get any one confirmation from support then you can buy the stocks, Forex, Binary Option.

6

Bearish Engulfing Pattern

Bearish Reversal
Bearish Engulfing Candlestick Pattern

A Bearish engulfing pattern is a reversal candlestick pattern which is Bearish in nature and appears at the end of the uptrend trend.

The Bearish Engulfing pattern has exactly the opposite functions compared to the Bullish Engulfing. It occurs when a small Bullish candle is engulfed by a large Bearish candle.

The first candle is a green Bullish candle and the second candle is the reversal Red candle. When a Bearish Engulfing candle forms at the end of a downtrend, the reversal is much more powerful.

Criteria of Taking Trades

  • The body of the second day candle should be completely engulfing the real body of the first day candle.
  • The prices should be in a definable up trend.
  • The body of the second candle is opposite color (black/red) of the first candle.
  • The greater the open gaps up from the previous close, the greater the probability of a strong Bearish signal.
  • The Bearish Engulfing candlesticks pattern should be formed at the resistance zone or oversold zone.

Note

Before placing any Sell order, you have to check the resistance line by using horizontal resistance trend line & over sold zone by using the indicators RSI, Stochastic etc. when you get any one confirmation from support & over sold then you can buy the stocks, Forex, Binary Option.

7

Piercing Pattern

Bullish Reversal
Piercing Candlestick Pattern

Piercing Pattern is a reversal Bullish candlestick pattern that appears at the end of a down trend.

The pattern is formed by the combination of two candlesticks. The first candle is Bearish (Red/Black) and the second is Bullish (Green/white).

The price opens at almost high of the day and the price closes almost at the bottom. This results in the formation of a Bearish candle, which is the first candle of the piercing candlestick pattern.

The price of second candle opens below the low of the previous Bearish candle & it must close above the middle of the real body of the first candle.

Criteria of Taking Trades

  • The first day candle should be black/red & occurs at the end of the down trend.
  • The second day candle should be opens lower than the trading of the previous day.
  • The white/green candle should be closed more than halfway up of the black/red candle.
  • The longer the red candle and the green candle, the more powerful the reversal.
  • The greater the gap downs from the previous day close, the more powerful the reversal.
  • Large volume during these two trading days is a significant confirmation for the Bullish signal.
  • Piercing Pattern should be formed at the support level.
  • The candle should be formed at the Resistance zone.
8

Dark Cloud Cover

Bearish Reversal
Dark Cloud Cover Candlestick Pattern

Dark Cloud Cover is a bearish candlestick reversal pattern, like the Bearish Engulfing Pattern or can say opposite of Piercing Pattern.

Dark Cloud Cover Pattern occur when a bearish candle on Day 2 closes below or 50% of the middle of Day 1's candle.

It is a market reversal candle stick pattern. It forms at the resistance level and after forming of this candle the market will go down (Sell).

Criteria of Taking Trades

  • The first day candle should be white/green & occurs at the end of the up trend.
  • The second day candle should be opens higher than the trading of the previous day.
  • The black/red candle should be closed more than halfway down of the white/green candle.
  • The longer the red candle and the green candle, the more powerful the reversal.
  • The greater the gap up from the previous day close, the more powerful the reversal.
  • Large volume during these two trading days is a significant confirmation for the Bearish signal.
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