2 Candles, Big Reversal: Mastering the Two-Candle Pattern
As the name suggests, two candles create these patterns.
Two common candlestick patterns are as follows:
- Bullish Engulfing Pattern
- Bearish Engulfing Pattern
- Bullish Harami
- Bearish Harami
- Piercing Pattern
- Dark Cloud Cover
Bullish Engulfing Pattern
It is a bullish two-candle reversal pattern that signals the conclusion of the current downward trend and the beginning of an upward trend.
A small black or red bearish candle that forms in line with the current bearish trend usually marks the first day of this pattern. It is followed by a long white or green bullish candle that entirely engulfs the genuine body of the previous day's bearish candle.
This candlestick pattern indicates that buyers are more likely to drive up prices because they have been outpacing sellers.
Bearish Engulfing Pattern
It is a bearish reversal pattern with two candles that signals the end of the current uptrend and the beginning of a new one.
In this pattern, a little white or green bullish candle usually appears on the first day in line with the current bullish trend. This is usually followed by a long black or red bearish candle that engulfs the real body of the previous day's bullish candle completely.
This candlestick pattern indicates that sellers are more likely to drive down prices because they have been outnumbering buyers.
Bullish Harami Pattern
A bullish reversal pattern with two candles, known as a bullish Harami, signifies the conclusion of a current downward trend and the beginning of an upward one.
Due to the fact that the image used to symbolize this pattern resembles a pregnant woman, the word "pattern" comes from the Japanese word "harami," which means "pregnant woman".
A massive red or black bearish candle that forms in line with the current bearish trend usually marks the first day of this pattern. It is followed by a little green or white bullish candle with a small body and somewhat smaller lower and upper shadows.
The body of the preceding candle houses the body of the second candle.
The body of the larger candle should ideally be around four times larger than the body of the smaller candle.
This pattern implies that buyers are taking charge and prepared to accept a higher price.
Bearish Harami Pattern
A bearish reversal pattern with two candles, known as a bearish Harami, signifies the conclusion of an ongoing uptrend and the beginning of a downturn.
A large green or white bullish candle that forms in line with the current bullish trend usually marks the first day of this pattern. It is followed by a little red or black bearish candle with a small body and relatively modest lower and upper shadows.
The body of the preceding candle houses the body of the second candle.
The body of the larger candle should ideally be around four times larger than the body of the smaller candle.
If the red or black top and lower shadows stay inside the green or white candle, the pattern will look better.
This trend points to sellers taking charge and being prepared to drop the price.
Piercing Line Pattern
The two-candle bullish reversal pattern known as the Piercing Line Pattern signals the conclusion of the current decline and the beginning of an uptrend.
In this pattern, a big red or black bearish candle usually appears on the first day in line with an ongoing bearish trend. This is usually followed by a powerful green or white bullish candle that opens below the low of the previous day but closes above the preceding candle's mid range.
It is regarded as a stronger bullish indicator if the volume of the second candle is more than the average volume.
This candlestick pattern indicates that buyers are now in control of sellers and are inclined to demand a greater price.
Dark Cloud Cover Pattern
A bearish reversal pattern consisting of two candles, known as Dark Cloud Cover, signals the conclusion of a continuing uptrend and the beginning of a new one.
The first day of this pattern is typically characterized by a large bullish candle that is green or white and forms in accordance with the ongoing bullish trend. This is usually followed by a strong bearish candle that is red or black and opens higher than the high of the previous day but eventually closes below the previous candle's mid range.
It is regarded as a stronger bearish indication if the volume on the second candle is greater than the average volume.
This candlestick pattern indicates that sellers are now more powerful than buyers and are inclined to drop the price.
Are patterns with two candlesticks profitable?
Absolutely, double candlestick patterns can be profitable if applied correctly and under the appropriate market circumstances. The pattern gives traders important information regarding future price movement continuations. To increase profits, traders can combine the double candlestick pattern with other technical indicators and analyze the state of the market.
For the purpose of controlling their positions and reducing losses, they should appropriately apply risk management strategies, such as placing stop-loss orders. Double candlestick patterns are therefore advantageous in marketing and trading.
Which indicators work best with patterns of two candlesticks?
When analyzing price patterns, double candlestick charts are among the most popular technical tools. Traders and investors use it to identify trends that point to the direction of the price. Indicators with double candlestick patterns are used by traders to verify their indications.
Five indications are commonly used:
- The Relative Strength Index (RSI) is a tool used by traders to detect oversold market circumstances, which can contradict signals derived from double candlestick patterns.
- Potential levels of support and resistance are indicated by the Fibonacci retracement, which validates indications from double candlestick patterns.
- The direction of the trend indicated by the double candlestick pattern is verified by moving averages.
- Bollinger Bands can also be used to determine possible levels of resistance and support.
- Volume validates the double candlestick patterns' signals' power. Stronger messages may be indicated by higher volume, and vice versa.
Traders should conduct thorough investigation and employ a variety of indicators prior to making any trading selections.