Multiple candlestick patterns- Part 2

Welcome back, everyone, to Part 2 of Multiple Candlestick Patterns. Today we are going to discuss about five more major candlestick patterns that will help you in your technical analysis.

If you haven't read Part 1 of Multiple Candlestick Patterns, you can read it by clicking here👉🏻 Multiple candlestick patterns: Part 1

1. Bullish Harami:

A bullish hammer is formed with the combination of two candlesticks. This is a bullish reversal pattern that is formed at the bottom of a downtrend.

Here, the first red candle indicates a strong downtrend in the market. The next small green candle is formed, which shows that the bulls are coming back into the game. The second green candle (body and wicks) should be completely within the range of the first red candle; otherwise, it won't be a valid bullish harami.

To trade this pattern, there are two entries:

Entry 1: If the next upcoming candle breaks the high of the second green candle, you can enter with a stop-loss below the first red candle's low.

Entry 2: If the next upcoming candle breaks the high of the first red candle, you can enter by keeping the stop-loss below the low of the same first red candle.

The safest of both is Entry 2, as it gives more confidence and is more reliable, but it comes with a bigger stop-loss compared to Entry 1.

I recommend you go with Entry 2.

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

2. Bearish Harami:

Bearish harami works completely opposite of the bullish harami candlestick pattern. This pattern is also formed with a combination of two candlesticks. This is a bearish reversal pattern that is formed at the top of an uptrend.

Here, the first green candle indicates a strong uptrend in the market. The next small red candle is formed, which shows that the bears are coming back into the game. The second red candle (body and wicks) should be completely within the range of the first green candle; otherwise, it won't be a valid bearish harami.

Similar to the bullish harami pattern, you can also trade this pattern with two entries:

Entry 1: If the next upcoming candle breaks the low of the second red candle, you can enter with a stop-loss above the first green candle's high.

Entry 2: If the next upcoming candle breaks the low of the first green candle, you can enter by keeping the stop-loss above the high of the same first green candle.

Here too, the safest of both is Entry 2. Though it has a bigger stop-loss, the chances of hitting the stop-loss are lesser than for Entry 1.

I recommend you go with Entry 2.

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

3. Piercing pattern:

The piercing pattern works opposite of the dark cloud candlestick pattern (discussed in Part 1). This pattern is a bullish reversal pattern and is formed at the bottom of a downtrend, which indicates that the bulls are taking control back in the market.

In this pattern, the first red candle indicates the dominance of the bears in the market. The second green candle opens gap down and closes above 50% of the length of the first red candle. This formation shows that the bulls are coming back with strong momentum and want to take the market upside.

Traders can create an upside position if the next candle breaks the high of the second green candle and place a stop-loss below the low of the same green candle.

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

4. Three white soldiers:

This candlestick pattern is formed with a combination of three candlesticks. Three white soldiers are formed at the bottom of a downtrend, which indicates a bullish reversal in the market.

These three bullish green candlesticks are formed one after the other. The bodies of the candles should be big enough, with very short wicks or shadows. They represent a strong upmove in the market, with bulls taking control.

Traders can take an upside entry if the next upcoming candle breaks the high of the third green candle and place a stop-loss below the low of the first green candle.

Below is an example of a three white soldiers candlestick pattern on a chart with entry and stop-loss levels:

5. Three black crows:

This candlestick pattern works opposite of the three white soldiers pattern. It is formed with a combination of three candlesticks. Three black crows are formed at the top of an uptrend, which indicates a bearish reversal in the market.

These three bearish red candlesticks are formed one after the other. The bodies of the candles should be big enough, with very short wicks or shadows. They represent a strong downtrend in the market, with bears dominating the market.

Traders can take a downside entry if the next upcoming candle breaks the low of the third red candle and place a stop-loss above the high of the first red candle.

Below is an example of a three black crows candlestick pattern on a chart with entry and stop-loss levels:

Studying and practising these candlestick patterns will give you a better understanding of how they work in the live market. These are all highly used patterns by many traders, as they give the best results if traded properly. Observe the patterns by backtesting them and taking trades in the live market with very little quantity to test the results. After you get good results and gain enough confidence to trade them, increase your quantity gradually, following proper risk management. 

I hope you find this piece of content helpful. Comment below if you have any doubts or need any knowledge related to the stock market.

Happy Trading!

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