Multiple Candlestick Patterns- Part 1

Candlestick charts are an important part of technical analysis, which helps us take good trades while trading in the stock market. This chart is made up of different types of candlesticks, with each candlestick having its own significance. Even a single candlestick is powerful enough to signal a buy or sell opportunity in the market. But today we are going to discuss multiple candlestick patterns, which are formed by combining two or more candlesticks together.

 

Multiple candlestick patterns provide a strong and clear view of the market and help us to trade more confidently. Pattern formations are seen frequently on the chart, and with thorough study, you can spot them easily and trade.

 

So in this Part 1, we are going to discuss five major multiple candlestick patterns and how to use them in trading:

 

1. Bullish Engulfing:

 

A bullish engulfing pattern is formed with the combination of two candles. This candlestick pattern is a bullish reversal pattern that is formed at the bottom of a downtrend. This indicates that the bears have lost their momentum and are unable to push the market lower.

Here, the green candle has completely engulfed the previous red candle, which shows that the bulls are back in the game and are ready to take the price higher. Traders can take a long position if the next candle breaks the high of the engulfing green candle and put a stop-loss below the low of the same green candle.

Below is an example of a bullish engulfing candlestick pattern on a chart with entry and stop-loss levels:

 

2. Bearish Engulfing:

 

The bearish engulfing candlestick pattern is completely opposite of the bullish engulfing candlestick pattern. This is a bearish reversal pattern that is formed at the top of an uptrend. This indicates that the bulls are losing their momentum and are unable to sustain the uptrend.

Here, the red candle has completely engulfed the previous green candle, which shows that the bears are back in the game and want to take the market to the downside. Traders can take a short position if the next candle breaks the low of the engulfing red candle and put a stop-loss above the high of the same red candle.

 

Below is an example of a bearish engulfing candlestick pattern on a chart with entry and stop-loss levels:

 

3. Morning star:

 

This is a bullish reversal candlestick pattern formed with a combination of three candlesticks. It is formed at the bottom of a downtrend, which indicates that the bear market has ended with bulls taking control.

Here, the first red candle represents the ongoing downtrend in the market. The second candle that forms is a doji candle, which indicates indecision. The third candle, which is a bullish candle forming after the doji, shows that the bulls are coming back into the game. This complete combination of candlesticks indicates that a bullish reversal will take place.

 

Note: The doji candle should be completely away from the bodies of the first and the second candle.

 

Traders can create a long position if the next follow-up candle breaks the high of the green candle and put a stop-loss below the low of the dogi candle.

 

Below is an example of a morning star candlestick pattern on a chart with entry and stop-loss levels:

  

4. Evening star:

 

The evening star pattern works completely opposite of the morning star pattern. This is a bearish reversal candlestick pattern formed with a combination of three candlesticks. It is formed at the top of an uptrend, which indicates that the bull market has ended and the bears are taking control.

Here, the first green candle represents the ongoing uptrend in the market. The second candle that forms is a doji candle, which indicates indecision. The third candle, which is a bearish candle forming after the doji, shows that the bears are taking the charge. This complete combination of candlesticks indicates that a bearish reversal will take place.

Note: The doji candle should be completely away from the bodies of the first and the second candle.

 

Traders can create a short position if the next follow-up candle breaks the low of the red candle and put a stop-loss above the high of the dogi candle.

 

Below is an example of an evening star candlestick pattern on a chart with entry and stop-loss levels:

 

5. Dark cloud cover:

 

Dark cloud cover is a bearish reversal pattern that is formed after an uptrend. This pattern is formed by a combination of two candlesticks. This pattern indicates that the bull market has ended and the bears will start a downtrend.

The first green candle indicates an ongoing uptrend in the market. The second red candle opens gap up and closes below 50% of the previous green candle's body. This pattern shows that the uptrend is now converting into a downtrend, and the bears are making their grip stronger in the market.

 

Traders can take a short position if the next candle breaks the low of the second red candle and put a stop-loss above the high of the same red candle.

 

Below is an example of a dark cloud cover candlestick pattern on a chart with entry and stop-loss levels:

 

So here we come to the end of Part 1 of multiple candlestick patterns. These are high-accuracy patterns that give good results if traded with proper rules and risk management. Spend some time on the charts and observe these patterns, backtest them, and trade with very little quantity until you gain confidence.

 

I hope you find this blog helpful and that it takes you one step ahead in your trading journey.

 

Stay tuned for Part 2 of multiple candlestick patterns.

Happy Trading!

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