Patterns formed by two candles are called double candlestick patterns. Double candlestick patterns are useful for swing trading. If these patterns are coupled with oversold or overbought conditions of leading indicator more approximate swing trading techniques can be developed.
There are many types of double candlestick patterns. Let's study some frequently occurring patterns.
Bullish engulfing pattern-
As the name implies, bullish candle completely engulfs the preceding bearish candle.
The first candle is small & red. The second candle is green. The second candle opens gap-down that means open price of second candle is below the close price of previous red candle. Then the second candle closes above the open price of previous red candle. This green candle completely engulfs the previous red candle.
Bullish engulfing pattern if comes after a downtrend implies the downtrend is coming to an end & bullish trend may start.
If we couple this pattern with oversold level of leading indicator then it's a good opportunity for swing trading. If bullish engulfing pattern occurs when stochastic or RSI is at oversold level, it's time for entry (buy).
Following chart explain the same theory.
The above chart of jk tyre shows hammer at vertical line when stochastic is below 20-level.The preceding candle is small red candle & the next candle at vertical line is green hammer which is totally engulfing the red candle. This is the perfect example of bullish engulfing candlestick pattern where stochastic is oversold. See the rally right to vertical line.
Hammer itself is trend-changer candle at oversold level. It shows more buyers are entering at this level & pulling the stock price upward resulting in a long tail. Trend-changer candle at oversold level shows bullishness & if it is engulfing the preceding red candle it's bullish trend reversal.
'Buy' the next day when bullish engulfing candle appears & 'sell' when both stochastic lines intersects each other.
Bearish engulfing pattern-
In this type the first candle is green. The second candle is red which completely engulfs the green candle.
The first candle is small & green. The second candle is red with gap-up open, that means it's open price is up than the previous close. But candle being red closes below the open price of previous candle, this engulfs the previous candle.
If such a pattern occurs at overbought level the chance of trend-reversal that is downtrend is more.
If stochastic is at 80-level or RSI at 70-level & bearish engulfing pattern occurs, downtrend may occur which opportunity for entry (sell).
The above chart of Adani ent shows bearish engulfing pattern at overbought level.
The candle left to vertical line is small & green. The next candle at vertical line is red marubozu which totally engulfs the preceding green candle. This phenomenon occurring at overbought level is sign of bearish trend reversal. See to the right of vertical line downtrend prevailed over certain period.
'Sell' the next day when bearish engulfing pattern appears at overbought level, ' buy' when both stochastic lines intersects each other.
If you look to the left of vertical line a prominent shooting star is appearing. Actually it's a trend-changer candle at overbought level. But if you see left of this candle, it is red candle which is totally engulfed by green shooting star. This is sign of bullish engulfing pattern, but it has no meaning because this phenomenon is occurring at overbought level & not at oversold level.
Bullish harami-
Harami is Japanese word meaning 'pregnant woman'.
The first candle in this pattern is long bearish that is long red candle. The second candle is small & green which is totally inside the first candle. Ideally the second candle is gap-up open that means the open price of second candle is above the previous close & the close price is below the opening price of previous candle.
If the second candle is trend-changer candle (hammer, spining top, green marubozu) the trend-change is prominent.
If such a candlestick pattern occurs at oversold level it's bullish trend reversal, which is opportunity for swing trading.
If you observe the above chart of Sunpharma bullish harami candlestick pattern can be observed.
The preceding candle to vertical line is red marubozu. The candle at vertical line is green marubozu which is completely inside the red candle.
If you look below in stochastic chart, stochastic is touching 20-level which is oversold level of stochastic. This is the ideal condition for swing trading.
If bullish harami is occurring at oversold level it's sign of bullish trend reversal.
See to the right of vertical line, a good rally of 10-15% occurred in a month.
This is opposite to bullish harami. In this type of pattern the first candle is long bullish that is green candle. The second candle is red & within the body of first candle.
Ideally the second candle is gap-down opening that means the open price of second candle is lower than the previous close & close is inside the open price of first candle. The second body is totally embed in first body.
If second candle is trend-changer candle (hanging man, spining top, red marubozu) the possibility of trend change is more.
If such a pattern at overbought level it's a sign of bearish trend reversal.
The above chart of Dabur India ltd. Shows bearish harami at vertical line.
The candle left to vertical line is green marubozu. The second candle is red, open & close of which are inside the green marubozu. This second candle is a shooting star occurring at overbought level may change the trend.
Look below in the stochastic chart. It is overbought at vertical line. The ultimate result is downtrend occurred.
When bearish harami occur at overbought level make entry(sell).Wait either to fall stochastic to oversold level or a bullish trend-changer candle near oversold level. In this case red gravestone doji appearing in the chart when stochastic is near 20-level.You may exit(buy) here.
There are many types of double candlestick patterns. Let's study some frequently occurring patterns.
Bullish engulfing pattern-
As the name implies, bullish candle completely engulfs the preceding bearish candle.
The first candle is small & red. The second candle is green. The second candle opens gap-down that means open price of second candle is below the close price of previous red candle. Then the second candle closes above the open price of previous red candle. This green candle completely engulfs the previous red candle.
Bullish engulfing pattern if comes after a downtrend implies the downtrend is coming to an end & bullish trend may start.
If we couple this pattern with oversold level of leading indicator then it's a good opportunity for swing trading. If bullish engulfing pattern occurs when stochastic or RSI is at oversold level, it's time for entry (buy).
Following chart explain the same theory.
Hammer itself is trend-changer candle at oversold level. It shows more buyers are entering at this level & pulling the stock price upward resulting in a long tail. Trend-changer candle at oversold level shows bullishness & if it is engulfing the preceding red candle it's bullish trend reversal.
'Buy' the next day when bullish engulfing candle appears & 'sell' when both stochastic lines intersects each other.
Bearish engulfing pattern-
In this type the first candle is green. The second candle is red which completely engulfs the green candle.
The first candle is small & green. The second candle is red with gap-up open, that means it's open price is up than the previous close. But candle being red closes below the open price of previous candle, this engulfs the previous candle.
If such a pattern occurs at overbought level the chance of trend-reversal that is downtrend is more.
If stochastic is at 80-level or RSI at 70-level & bearish engulfing pattern occurs, downtrend may occur which opportunity for entry (sell).
The candle left to vertical line is small & green. The next candle at vertical line is red marubozu which totally engulfs the preceding green candle. This phenomenon occurring at overbought level is sign of bearish trend reversal. See to the right of vertical line downtrend prevailed over certain period.
'Sell' the next day when bearish engulfing pattern appears at overbought level, ' buy' when both stochastic lines intersects each other.
If you look to the left of vertical line a prominent shooting star is appearing. Actually it's a trend-changer candle at overbought level. But if you see left of this candle, it is red candle which is totally engulfed by green shooting star. This is sign of bullish engulfing pattern, but it has no meaning because this phenomenon is occurring at overbought level & not at oversold level.
Bullish harami-
Harami is Japanese word meaning 'pregnant woman'.
The first candle in this pattern is long bearish that is long red candle. The second candle is small & green which is totally inside the first candle. Ideally the second candle is gap-up open that means the open price of second candle is above the previous close & the close price is below the opening price of previous candle.
If the second candle is trend-changer candle (hammer, spining top, green marubozu) the trend-change is prominent.
If such a candlestick pattern occurs at oversold level it's bullish trend reversal, which is opportunity for swing trading.
The preceding candle to vertical line is red marubozu. The candle at vertical line is green marubozu which is completely inside the red candle.
If you look below in stochastic chart, stochastic is touching 20-level which is oversold level of stochastic. This is the ideal condition for swing trading.
If bullish harami is occurring at oversold level it's sign of bullish trend reversal.
See to the right of vertical line, a good rally of 10-15% occurred in a month.
When bullish harami occurs at oversold level, make entry(buy) the next day. Wait stochastic to enter into overbought level. You may exit(sell) when both stochastic lines intersects each other & a trend-changer candle (hanging man) appeared. You might have gained 5-7% in 6-7 trading days.
Bearish harami-
This is opposite to bullish harami. In this type of pattern the first candle is long bullish that is green candle. The second candle is red & within the body of first candle.
Ideally the second candle is gap-down opening that means the open price of second candle is lower than the previous close & close is inside the open price of first candle. The second body is totally embed in first body.
If second candle is trend-changer candle (hanging man, spining top, red marubozu) the possibility of trend change is more.
If such a pattern at overbought level it's a sign of bearish trend reversal.
The candle left to vertical line is green marubozu. The second candle is red, open & close of which are inside the green marubozu. This second candle is a shooting star occurring at overbought level may change the trend.
Look below in the stochastic chart. It is overbought at vertical line. The ultimate result is downtrend occurred.
When bearish harami occur at overbought level make entry(sell).Wait either to fall stochastic to oversold level or a bullish trend-changer candle near oversold level. In this case red gravestone doji appearing in the chart when stochastic is near 20-level.You may exit(buy) here.
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