Discover advanced candlestick patterns and trading strategies in Part-II of our logical guide. Explore advanced chart analysis techniques and trading strategies to gain an edge in the market. Get practical insights and expert tips from MoneyWiseMind today and take your trading to the next level.
Multiple Candlestick Patterns:
When two or more candles in a certain sequence create a candlestick pattern we call it multiple candlestick pattern. In this pattern we need 2 or 3 Candles to identify the pattern and to take a trade. The longer the time frame, the more powerful it is.
Let's get started.
Bullish Patterns
1. Bullish Engulfing:
The bullish engulfing pattern comprises of two candles that appears at the bottom or support in a downtrend. The prior trend should be a downtrend. On the first session a red candle is formed that confirms the continuation of bearishness in the market. On the 2nd session a green candle is formed in the pattern which is long enough to engulf the first session's red candle.
The logic behind the bullish engulfing pattern
The market is in a downtrend with prices making lower lows. On the first session the market opens at low and makes a new low and forms a red candle. On the next session the stock opens near the closing price of the 1st session. But at this low point sudden buying pressure emerges driving the price to close higher than the 1st session's open. As a result, a long green candle is formed which confirms the strength of the bulls and to continue the bullishness for the next few sessions. One can take long position at the closing of the green Candle keeping a stop loss at the lowest low of the two candles.
Below is an example of a Bullish Engulfing pattern occurred in daily chart of Britannia Industries Ltd.
2. Bullish Harami:
Bullish Harami is a bullish candlestick pattern consists of two candles appears at the bottom of a chart. The first candle is bearish and the second candle must be bullish. If it forms at support then it has more significance.
Here, I want to clear about the word 'Harami'. The word Harami does not mean as the word used in Hindi. It is an old Japanese word that means pregnant.
The logic behind Bullish Harami candlestick pattern
The market is in downtrend making lower lows confirming bears have total grip of the market. On 1st session a red candle is formed creating a new low. On the 2nd session market opens higher than the previous session close price. Market finally closes on a positive note and as a result a green candle forms smaller than the previous red candle like contained (pregnant) within the big red candle.
The bears get panicked giving an extra push to the bulls and as a result price goes upward. Hence one can look at taking long position on the stock around the close of the 2nd candle. Stop-loss should be at the lowest low of the two candles or may give 2-3 points buffer as per risk appetite.
Below chart is an example of a Bullish Harami pattern occurred in TCS on daily timeframe.
3. Morning Star Candlestick Pattern:
The morning star is a bullish pattern consists of 3 candlesticks consecutively in a certain order. The morning star appears at the bottom of a downtrend indicating buying interest. If it forms in higher time-frame it can work as a reversal of downtrend with higher probability.
Morning Star pattern logic
On the 1st session there is a big red candle formed confirming the absolute control of the bears over the market. On the 2nd session market opens with a gap down and at the end forms a doji Or spinning top which represents indecision in the market. On the 3rd session market opens with a gap up creating a green candle and finally closes above the high of the 1st session's candle.
After getting confirmation of a morning star pattern formation one can make long position (buy) in the stock at the close of 3rd session's candle(3:20 P.M to 3:25 P.M) keeping a stop loss at the lowest low of the 3 candles.
Below is an example of a morning star pattern occurred in daily chart of Ultratech Cement.
Now, we will discuss about bearish patterns...
1. Bearish Engulfing Pattern:
It's a bearish pattern comprises of two candles. First candle is bullish and second candle is a bearish one. The 2nd candle is so big that it engulfs the 1st candle completely. If it forms at the top in an uptrend which is a resistance it indicates higher selling probability. The prior trend should be an uptrend.
Logic behind Bearish Engulfing Pattern
On the first session, market goes up reassuring the continuation of bullishness. On the second session, the market opens higher and makes a new high. But at the higher point, a selling pressure emerges. The selling pressure is so extreme that the stock closes below the open of the 1st session's candle. It indicates the bears take absolute control over the market. One can make short position (sell) below the low of the 2nd candle keeping a stop loss at the high of that particular candle or may give some buffer (2-3 points) as per risk management.
Below is an example of bearish engulfing pattern occurred in daily chart of Asian Paints Ltd.
2. Bearish Harami:
It's a two candles bearish pattern. The first candle is big one and the 2nd one is half of the first candle. 1st candle is bullish and the 2nd one is bearish. If it forms at the resistance it has more impact.
The logic behind Bearish Harami
The market is in uptrend, bulls have full control making higher highs. On 2nd session the market opens lower and continue to trade lower and finally closes negatively forming a red candle. The unexpected negative move creates a panic among the bulls and they start to unwind their long positions. This accelerates the selling pressure creating opportunity for traders to take short positions. Stop-loss should be at the highest point of the two candles.
Below is an example of a Bearish Harami pattern occurred in daily chart of TCS.
3. Evening Star:
It's a bearish pattern comprised of three candles. When it forms at the top of an uptrend or at resistance it indicates selling probability. If it forms in higher time-frame it can work as a reversal of uptrend with higher probability.
The Evening Star logic
On the first session a big green candle is formed during the uptrend confirming the absolute control of the bulls over the market. On 2nd session market opens with gap-up but at the end forms a spinning top or doji which represents indecision in the market. On the 3rd session the market opens gap-down creating a long red candle.
This long red candle confirms the strength of the sellers. Panic in bulls accelerates the bearishness in the market. One can short(sell) the stock on session 3 around 3.25 pm after getting confirmation of formation of an evening star candlestick pattern. Stop loss should be at the highest high of the 3 candles.
Below is an example of a evening star pattern occurred in daily chart of Dixon Technologics (india)Ltd.
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
