BULLISH ENGULFING
A bullish engulfing candle occurs after a significant downtrend. Note that the engulfing candle must
encompass the real body of the previous candle, but need not surround the shadow.
In order for the Bullish Engulfing signal to be valid, the following conditions must exist:
• The stock must have been in a definite downtrend before this signal occurs. This can be
visually seen on the chart.
• The second day of the signal should be a white candle opening below the Close of the previous
day and closing above the Open of the previous day’s black candle.
BEARISH ENGULFING
A bearish engulfing candle occurs after a significant uptrend. Again, the shadows need not be
surrounded.
In order for the Bullish Engulfing signal to be valid, the following conditions must exist:
• The stock must have been in a definite downtrend before this signal occurs. This can be
visually seen on the chart.
• The second day of the signal should be a white candle opening below the Close of the previous
day and closing above the Open of the previous day’s black candle.
HARAMI / INSIDE BAR
This pattern is a two-candlestick pattern in which the first candlestick vertically
encompasses the one that follows it.
This signal is interpreted in two ways:
1. An indication that an increase in volatility is imminent. This affords traders
the opportunity to create trades that speculate not so much on direction,
but rather on an increase in volatility on a breakout in any specific direction.
2. In the context of a trend, a harami/inside bar can be indicative of exhaustion
and the onset of a reversal. In this manner, it is similar to long wick patterns
and evening star/morning star patterns.
KICKER
A kicker signal, also known as a professional gap, occurs when
the following conditions are met:
1. Price is moving in a trend.
2. Suddenly, a gap appears in the chart. A gap is defined as
when the open price of one candle is not equal to the
close price of the candle that precedes it; there is a gap
in the price movement.
The gap is in the opposite direction
of the trend. For instance, imagine that price closed at
10 after rallying over a number of days from 2. The next day,
price opens at 8. In this instance, we have a gap down,
or a bearish kicker. Conversely, if price fell from 10 to 3 and
then opened the next day at 5, it would signal a bullish kicker,
a bullish sign for traders.
A kicker signal can be a very powerful sign that a trend is reversing. It is often interpreted as a sign
that professional investors have quickly realized that a trend is over, and are looking to get out
immediately. As such, this signal often precipitates a rapid reversal of the prior trend.
PIERCING LINE
Piercing Line
A bullish signal that occurs in the context of a downtrend when, after a long bearish
candle, a bullish candle opens at a new low and then closes at a level at least halfway
up the body of the previous bar; this signal is reliable as a two-bar indicator of a trend
reversal in proportion to the height of the second bullish bar.
As the strength of the
reversal signal is related to the size of the second candle, this pattern is similar to
the Tweezer pattern.
In order for the Piercing signal to be valid, the following conditions must exist:
• The stock must have been in a definite downtrend before this signal occurs. This can be
visually seen on the chart.
• The second day of the signal should be a white candle opening below the low of the previous
day and closing more than half way into the body of the previous day’s black candle
DARK CLOUD COVER
Dark Cloud Cover
This two-candle bearish reversal pattern is the bearish converse of the piercing line,
occurring at the top of a bullish trend. The first bullish candle is followed by a
bearish candle that opens at a new high and then closes at least halfway down the
body of the bar preceding it.
The strength of the reversal signal is proportionate to
the length of the second candle. This pattern is clearly conceptually and
mathematically similar to the Piercing Line and Tweezer patterns.
In order for the Dark Cloud signal to be valid, the following conditions must exist:
• The stock must have been in a definite uptrend before this signal occurs. This can be visually
seen on the chart.
• The second day of the signal should be a black candle opening above the high of the previous
day and closing more than half way into the body of the previous day’s white candle.
THREE WHITE SOLDIERS
This is a 3-candle bullish pattern that implies a
reversal at the bottom of a bearish trend. The three
soldiers are bullish candlesticks that open within
the body of the previous candlestick and close near
the high of the day. This applies to all
three candles; they should all be strong
bullish candles, with small wicks and a close near
the top. These high closes imply a strong reversal
from bearish to bullish market sentiment.
THREE BLACK CROWS
This 3-candle pattern is the opposite of
“Three White Soldiers;” it signals the reversal
away from bullish control at the top of
an uptrend. It consists of three successive
bearish bars that open within the preceding
bar’s body and close below its close.
THE TWEEZERS PATTERN
Always involves two candles. At a tweezers top, the high price of two nearby
sessions is identical or very nearly so. In a high priced stock there may be a few cents variation, and I
believer it should still be considered a tweezers. At a tweezers bottom, the low price of two sessions
that come in close succession is the same. For simplicity, lets talk just about the tweezers bottom.
In
some instances, the tweezers bottom is formed by two real candlestick bodies that make an identical
low. In other instances, the lower shadows of two nearby candles touch the same price level and the
stock then bounces higher. A third possibility is that the lower shadow of one day and the real body of
a nearby session hit the same bottom level.
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