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📈 Advanced Candlestick Patterns: Bullish & Bearish Engulfing, Piercing Pattern, Harami, and Dark Cloud Cover
In this continuation of mastering candlestick patterns, we will delve into dual-candlestick patterns, including Bullish Engulfing, Bearish Engulfing, Piercing Pattern, Dark Cloud Cover, and Harami. These patterns provide strong reversal signals and are essential for traders to recognize potential trend shifts in the market.
🔥 Bullish Engulfing Pattern: A Strong Buy Signal
The Bullish Engulfing Pattern is a powerful bullish reversal pattern that appears after a downtrend. It consists of two candles:
📌 Characteristics: 1️⃣ The first candle is red (bearish), signaling seller dominance. 2️⃣ The second candle is green (bullish) and completely engulfs the body of the first candle. 3️⃣ The low of the pattern forms the stop-loss level, while the high forms the breakout level.
🎯 How to Trade Bullish Engulfing?
✔ Mark the highest and lowest points of the pattern. ✔ Enter the trade when the price moves above the high of the engulfing candle. ✔ Set stop-loss just below the low of the engulfing candle. ✔ Book partial profits at 1:1 risk-reward ratio and trail the rest using the Supertrend indicator.
📍 Example:
ZEE Entertainment recently formed a Bullish Engulfing Pattern after a downtrend.
The next candle confirmed the reversal, and the stock rallied upwards.
🔎 Finding Bullish Engulfing Patterns:
These patterns appear after a significant downtrend.
They are more effective when they occur near support levels or trend lines.
📉 Bearish Engulfing Pattern: A Strong Sell Signal
Just as the Bullish Engulfing pattern signals upward reversal, the Bearish Engulfing Pattern signals a downward reversal after an uptrend.
📌 Characteristics: 1️⃣ The first candle is green (bullish), indicating buyer control. 2️⃣ The second candle is red (bearish) and completely engulfs the first candle’s body. 3️⃣ The high of the pattern forms the stop-loss, and the low forms the breakdown level.
🎯 How to Trade Bearish Engulfing?
✔ Identify the pattern after an uptrend. ✔ Enter the trade when the price moves below the low of the engulfing candle. ✔ Stop-loss is set just above the high of the engulfing candle. ✔ Book partial profits at 1:1 risk-reward ratio and trail using the Supertrend indicator.
📍 Example:
Bank of Baroda recently formed a Bearish Engulfing Pattern after an uptrend.
The next candle breached the low, confirming the sell signal.
⚡ Piercing Pattern: A Moderate Bullish Reversal
The Piercing Pattern is similar to a Bullish Engulfing Pattern but slightly weaker.
📌 Key Differences from Bullish Engulfing: ✔ The bullish candle does NOT completely engulf the first red candle. ✔ Instead, it covers at least 50% of the previous candle’s body. ✔ It signals a moderate reversal instead of a strong one.
📍 Example:
Petronet LNG showed a Piercing Pattern after a downtrend, leading to a price rally.
🎯 How to Trade the Piercing Pattern?
Entry: When the price moves above the high of the bullish candle.
Stop-Loss: Below the low of the pattern.
Target: 50% at 1:1 risk-reward ratio, then trail the rest.
⚠ Dark Cloud Cover: A Moderate Bearish Reversal
The Dark Cloud Cover is the bearish version of the Piercing Pattern.
📌 Characteristics: ✔ Appears after an uptrend. ✔ The second red candle covers at least 50% of the previous green candle's body. ✔ Signals that bears have gained control but not entirely.
📍 Example:
Titan Stock recently formed a Dark Cloud Cover and broke below its low.
This pattern suggests a potential price drop in the coming sessions.
🎯 How to Trade Dark Cloud Cover?
Entry: When the price moves below the low of the bearish candle.
Stop-Loss: Above the high of the pattern.
Target: Book partial profits at 1:1 risk-reward ratio, then trail the rest.
🏆 Harami Pattern: A High-Probability Reversal Signal
The Harami Pattern is a powerful dual-candle reversal pattern named after the Japanese word for pregnant lady.
📌 Characteristics: ✔ Consists of two candles:
The first candle (mother) is large.
The second candle (baby) is small and entirely inside the mother’s body. ✔ The smaller second candle indicates indecision and a potential reversal. ✔ Can be bullish or bearish depending on trend context.
🔄 Bullish Harami
Appears after a downtrend.
First candle is red (bearish).
Second candle is green (bullish) and inside the body of the first candle.
Confirmation happens if the price breaks above the high of the second candle within four candles.
📍 Example:
A perfect Bullish Harami was recently seen in Coal India after a significant downtrend, leading to a price rise.
🚨 Bearish Harami
Appears after an uptrend.
First candle is green (bullish).
Second candle is red (bearish) and inside the body of the first candle.
Confirmation happens if the price breaks below the low of the second candle within four candles.
📍 Example:
KEI Industries recently formed a Bearish Harami, and the price broke down after confirmation.
🎯 How to Trade Harami Patterns?
✔ Mark the high and low of the pattern. ✔ Enter the trade when the price breaks beyond the high (for bullish) or below the low (for bearish). ✔ Stop-loss should be set at the opposite end of the pattern. ✔ Book profits at 1:1 risk-reward ratio and trail the remaining position.
🎯 Key Takeaways
✅ Bullish & Bearish Engulfing Patterns are strong reversal signals. ✅ Piercing Pattern and Dark Cloud Cover signal moderate reversals. ✅ Harami Patterns are highly reliable when confirmed within four candles. ✅ Stop-loss should always be placed beyond the pattern to minimize risk. ✅ Live practice is necessary—train your eyes to spot these patterns without tools.
📌 Pro Tip: Never rely solely on AI-generated pattern detectors—always manually verify the pattern in the chart.
🔜 Coming up next: More multi-candlestick patterns, advanced trading strategies, and practical trade setups! 🚀
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