Two candles pattern

(A) Bullish engulfing:-

A "bullish engulfing pattern" consists of a large white real body that engulfs a small black real body during a downtrend. It signifies that the buyers are overwhelming the sellers

Description:

The Engulfing pattern is one of the major reversal patterns which consists of two oppositely colored bodies. This Bullish Pattern occurs after a downtrend. It is formed when a black small candlestick is followed by a white big candlestick that completely covers the previous day candlestick. It opens lower than the previous day's close and closes higher than the previous day's open.

Criteria:

1.   The body of one candlestick of yesterday is fully covered by the one of today.

2.   Prices are falling finally even though short term.

3.   Color of the first candle is that of the prior candle and body of the second candle is the opposite color of that fi rst candle. Except an engulfed body that is a doji.

Signals Enhancements:

• A small body being overlapped by the larger one. Yesterday shows the trend was losing its steam. The large body indicates that this new trend has started with good strength.
• Large volume on the engulfing day increases the probability of a blow off day.
• The engulfing body engulfs the body and the shadows of the previous day; the reversal has a greater probability of working.
• The probability of a strong reversal increases when the open gaps between the previous and the current day increases.

Pattern psychology:

After a fall, the price opens at a lower level than its previous day closing price. By the end of the day, buyers have dominated, resulted in the price well above the opening price of the previous day. Emotional psychology in the trend has been overtaken. When investors are new in the game, they should use information that has worked in the past with high probability. Bullish engulfing signal, if applied after proper training and at proper locations, will result in highly profitable trades and good results. This pattern enables an investor to enhance their probabilities of being in the right trade. The common sense elements communicated in candlestick signals make for an uncluttered and simple trading technique both to novice investors and seasoned traders.

(B) Bearish engulfing:

A "bearish engulfi ng pattern," on the other hand, occurs when the sellers are overwhelming the buyers. Such a pattern is composed of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or "engulfs" the small white one.

(C) Piercing:

The dark cloud cover's bullish counterpart is the "piercing pattern." First, identify a piercing pattern in an existing downtrend as consisting of a long black candlestick followed by a gap lower open during the next session but which closes at least halfway into the prior black candlestick's real body.

Description:

The Piercing Pattern consists of a two-candle configuration in a down trending market. Using daily candles, the piercing pattern will often be the final candle in a smaller downtrend-a downtrend that lasts between six and fifteen trading days. The day before the piercing candle forms, the daily candle should have a fairly large dark real body, which indicates an exceptionally strong down day.

Criteria:

1.  The downtrend is there for a reasonable period.
2. The body of the first candle is black; the body of the second candle is white.
3. Long black candle close to the trend's end
4. The white candle closed more than halfway up the black candle.
5. The second day opens lower than the trading of the prior day.

Signal enhancements:

• The reversal will be stronger, if gap down the previous day close is higher .
•  More forceful is the reversal, if the length of black candle and white candle is more
• Reversal becomes stronger the higher the white candle closes inside the black candle .
• Heavily traded both days is significant confirmation.

Pattern Psychology:

Once a strong downtrend has been in effect, the bears develop a bearish atmosphere.

The price moves lower. The bears can drive the price lower but before the close of the day, the bulls enter and make a dramatic reversal in price in the opposite direction. They close near the high of the day. The move has almost negated the price decline of the previous day. That now has the bears concerned. More buying the next day will confl rm the move. Being able to leverage information that has worked before is far more of an investment that makes sense than taking shots in the dark.

(D) Bearish Harami:

In up trends, the harami consists of a large white candle followed by a small white or black candle (usually black) that is within the previous session's large real body.

Description:

A bearish harami is a two-candlestick pattern consisting of a small black real body included in a previously relatively long white real body. The color of the body of the first candle is the same color as that of the current trend. The open and the close fall within the open and the close of the previous day. Its appearance means that the trend is over.

Criteria:

1. The first candle is white in color; the body of the second candle is black .
2. The second day opens lower than the close of the previous day and closes higher than the open of the prior day .
3. For a reversal signal, confirmatlon is required. The following day should indicate weakness.
4. The uptrend was clear. A long white candle appears at the end of the trend.

Signal enhancement:

• The more convincing the reversal will be, if the white and the black candle are longer.
• That a reversal has occurred, is the more convincing, the lower the black candle closes down on the white candle, independent of the length of the black candle.

Pattern psychology:

The bears open the price lower than the previous close, after a strong uptrend has been in effect and after a long white candle day.

The longs get nervous and start profi t taking. The price for the day ends at a lower level. The bulls are now worried as the price closes lower. It is becoming apparent that the trend has been violated. A weak day thereafter would confirm all eyes that the direction of the trend is reversing. Volume increases due to profit taking and short sales additions.