Bearish and Bullish Engulfing Patterns , Dark Cloud Cover
Now that we have finished the Single Candlestick patterns. Lets move on to Multiple CandleStick patterns which will appear more frequently on charts than the single candleStick Patterns.
Definition — When pattern consist of two or three candlesticks than that is classified as Multiple CandleStick pattern.
First we will look into two Candlestick patterns
Engulfing Pattern
It evolve over two trading session period. In Engulfing Pattern , A small candle appears on day 1 and on 2nd day a larger candle appears which look as if it has engulfed the day 1 candle.
It has two variations Bullish and Bearish Engulfing.
Bullish Engulfing
Day 1 candle should be red in color and Day 2 candle should be Blue in color and large enough to engulf the day 1 candle.
Now is it valid if it appears anywhere on the chart , tha answer is NO.
It is only valid if it appear at the bottom of a downtrend that is the prior trend should be Downtrend.
It is a Bullish candleStick Pattern which indicates to go long .
Stoploss will be lowest low between the two candles.
In the chart below see how a valid Engulfing pattern appeared at the bottom of a downtrend and market rallied after that.
Bearish Engulfing
Day 1 candle should be blue in color and Day 2 candle should be Red in color and large enough to engulf the day 1 candle.
It indicated Bearishness in market and indicates to go short. For Bearish Engulfing to be valid , prior trend should be Uptrend.
Stoploss will be Highest High between the two candles.
In the chart below see how a valid Bearish Engulfing pattern appeared at the top of a uptrend and market fall after that.
Now there is an interesting case when there a Doji formation after the Day 2 candle after either Bearish or Bullish Engulfing.
In this case whatever the Bearish or Bullish pattern has just become more confirmed and reversal of prior trend will be more strong.
It is same chart from above but look at the presence of Dojis after Bearish Engulfing . Presence of Dojis shows indecision in the market and then market fell sharply.
Now Lets Jump To Piercing Pattern
Dark Cloud Cover—
It is very similar to Bearish engulfing , the only difference being Red candle on Day 2 engulf blue candle of day 1 from 50% to 100% .
Stoploss and other part are same as Bearish Engulfing that is Go short and Stoploss will be Highest High between the two candles.
Condition to check if its valid or not :
- Prior trend should be uptrend
- Day 2 candle should be green and it should engulf Day 1 red candle from 50% to 100%
