Technical Analysis began in Japan with candlestick charting and still works today. This is due to the consistency of human emotion, the very thing charts are visualizing for us. Recognizing the psychology of a candlestick and pattern formations are crucial to catching a breakout, seeing a reversal at the beginning of a breakdown and other key information. This month I will be going over various candlestick and chart patterns, what they indicate and how to spot them.
My recommendation is to keep visuals of candlestick and chart patterns at your desk. In time, you’ll find yourself automatically spotting them when scanning a chart.
A bullish engulfing pattern is identified when a large bullish candlestick fully engulfs the smaller bearish candlestick from the period before. The second candles entirety must be greater than the entirety of the smaller bearish candle. This is a common reversal candle seen at the end of a downtrend, signifying higher prices to come.
Conversely, a Bearish Engulfing Pattern exists as well, giving us the opposite probability. A bearish engulfing pattern is identified when a large bearish candlestick fully engulfs the smaller bullish candlestick from the period before. The second candles entirety must be greater than the entirety of the smaller bullish candle. This is a common reversal candle seen at the end of an uptrend, signifying lower prices to come.