Multi candle patterns
Taking things up a notch, we’re going to show you some well established multi candle patterns – these are when two or more candles form a recognisable, repeatable pattern. All the patterns we are showing you are reversal patterns.
Bullish engulfing patterns
These patterns form in downtrends. The first candle is a bearish continuation of the trend with a small body – this can be any bearish candle but its normally a bearish spinning top or at least a neutral doji. Then, the second bullish candle engulfs the first’s body entirely. For this to happen the second candle gaps down, it might head lower before control is switched to bulls and they push the price up above the open of the first candle.
Traders watch for these formations because they indicate the balance of power – and sentiment – has shifted in the market from bears to bulls. There was uncertainty about the trend in the first candle and then a swing to the bulls in the second.
Example
Bearish engulfing patterns
These are the inverse of the bullish engulfing patterns and occur in uptrends. What we’re looking for here is a spinning top, a neutral doji or a small bullish candle followed by a gap up and reversal in the second, closing down below the body of the first.
- Bullish engulfing patterns form in downtrends and suggest a reversal. The second candle engulfs the first and indicates a change in control in the market.
- Bearish engulfing patterns are the inverse of their bullish cousins, they form in uptrends and suggest a reversal.