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Reversal Patterns (page 1)
There are also several types of reversal candlestick patterns within Forex trading, as defined below.
- Dark Cloud Cover
- Engulfing
- Evening Star
- Harami
- Morning Star Doji
- Piercing Line
- Three Black Crows
- Three White Soldiers
Dark Cloud Cover Pattern
During an upward trend in the market gaps will begin to open, but they are not stable and will lose ground falling below the midpoint of the market the previous day. This pattern indicates the opportunity for investors to capitalize at the opening of the market the next day. This is actually a warning sign for bullish investors. This candlestick pattern is the exact opposite of the Piercing Line pattern. This pattern indicates a bullish trend and has a high reliability rate.
- A white body followed by a black body.
- The black body passes the midpoint of the prior white body.
- This candlestick pattern occurs in an uptrend.
Engulfing Pattern
This pattern occurs when a candle body of the days market completely engulfs the body of the previous day. There are also several engulfing patterns, white engulfing candles are bullish, black engulfing candles are bearish. A bullish engulfing commonly occurs when there are short term bottoms and a bearish engulfing will occur when the market is at the top. Many of the other candlesticks, such as Dojis, Hammers and Hanging Man, require the confirmation that a trend change has occurred that follows an engulfing pattern. This pattern indicates a bullish trend and has a high reliability rate.
When engulfing occurs in a downward trend, it indicates that the the trend has lost momentum and bullish investors may be getting stronger.
- The first day's color indicates the trend of the trading day.
- The second real body should have the opposite color of the first real body.
- The second day's body should completely engulf the previous day's body.
When engulfing occurs during an upward trend, it indicates the market will open with a new high. This high will be followed by a high volume of sell-offs, that result in the day closing at or below that of the previous days opening. This indicates that the upward trend has suffered and became weak and the bearish investors may be gaining some strength in the market. This pattern indicates a bullish trend, but has only a moderate rate of reliability..
- The first day's color indicates the trend of the trading day.
- The second real body should have the opposite color of the first real body.
- The second day's body should completely engulf the previous day's body.
