a. How to recognise it?
- There must be a preceding downtrend.
- A shorter red candle followed by a longer green candle.
- The green candle opens lower and closes higher than the red candle, completely engulfing it.
b. What is the psychology behind?
- The red candle implies the control of the bears following a prolonged downtrend.
- In the next session, the market opens below the low of the red candle, suggesting the continuation of the bearish forces.
- The bears then lose momentum, the bulls take charge and lead the price up during the session, and eventually manage to close above the high of the red candle.
- The bulls have now fully overridden the bears.
c. How do we trade it?
- Look for the Bullish Engulfing at the bottom of a downtrend.
- Wait for the next candle to close above the high of the green candle to confirm the existence of bullish force.
- Open a long position upon confirmation.
- Place a stop-loss below the low of the green candle.
Piercing (Bullish)
a. How to recognise it?
- There must be a preceding downtrend.
- A red candle followed by a green candle.
- The green candle opens with a gap-down and closes at 50% or above of the real body of red candle.
b. What is the psychology behind?
- The red candle implies the control of the bears following a prolonged downtrend.
- In the next session, the market opens below the low of the red candle, suggesting the continuation of the bearish forces.
- The bears then lose momentum, the bulls conquer and lead the price up during the session, and eventually manage to cover 50% losses or more from the previous session.
c. How do we trade it?
- Look for the Piercing at the bottom of a downtrend.
- Wait for the next candle to close above the high of the green candle to confirm the existence of bullish force.
- Open a long position upon confirmation.
- Place a stop-loss below the low of the green candle.
Tweezer Bottom (Bullish)
a. How to recognise it?
- There must be a preceding downtrend.
- A red candle followed by a green candle.
- Both candles have the same low.
b. What is the psychology behind?
- The candles in both sessions form the same low, suggesting that the market refuses to go below that price level. Once the price touches the floor, it bounces back. That price level may be viewed as short-term support.
- The closing price of the green candle shies away from the low further than the red candle does. It shows that the bullish forces are getting stronger.
c. How do we trade it?
- Look for the Tweezer Bottom at the bottom of a downtrend.
- Wait for the next candle to close above the high of the two candles to confirm the existence of bullish force.
- Open a long position upon confirmation.
- Place a stop-loss below the low of the two candles
Bearish Engulfing (Bearish)
a. How to recognise it?
- There must be a preceding uptrend.
- A shorter green candle followed by a long red candle.
- The longer red candle opens higher and closes lower than the shorter green candle, completely engulfing it.
b. What is the psychology behind?
- The green candle implies the control of the bulls following a prolonged uptrend.
- In the next session, the market opens above the high of the green candle, suggesting the continuation of the bullish forces.
- The bulls then lose momentum, the bears take charge and send the price down during the session, and eventually manage to close below the low of the green candle.
- The bears have now fully overridden the bulls.
c. How do we trade it?
- Look for the Bearish Engulfing at the top of an uptrend.
- Wait for the next candle to close below the low of the red candle to confirm the existence of bearish force.
- Open a short position upon confirmation.
- Place a stop-loss above the high of the red candle.
Dark Cloud Cover (Bearish)
a. How to recognise it?
- There must be a preceding uptrend.
- A green candle followed by a red candle.
- The red candle opens with a gap-up and closes at 50% or below of the real body of the green candle.
b. What is the psychology behind?
- The green candle implies the control of the bulls following a prolonged uptrend.
- In the next session, the market opens above the high of the green candle, suggesting the continuation of the bullish forces.
- The bulls then lose momentum, the bears conquer and send the price down during the session, and eventually manage to wipe out 50% gains or more from the previous session.
c. How do we trade it?
- Look for the Dark Cloud Cover at the top of an uptrend.
- Wait for the next candle to close below the low of the red candle to confirm the existence of bearish force.
- Open a short position upon confirmation.
- Place a stop-loss above the high of the red candle.
Tweezer Top (Bearish)
a. How to recognise it?
- There must be a preceding uptrend.
- A green candle followed by a red candle.
- Both candles have the same high.
b. What is the psychology behind?
- The candles in both sessions form the same high, suggesting that the market refuses to go above that price level. Once the price touches the ceiling, it retreats. That price level may be viewed as a short-term resistance.
- The closing price of the red candle shies away from the high further than the green candle does. It shows that the bearish forces are getting stronger.
c. How do we trade it?
- Look for the Tweezer Top at the top of an uptrend.
- Wait for the next candle to close below the low of the two candles to confirm the existence of bearish force.
- Open a short position upon confirmation.
- Place a stop-loss above the high of the two candles.
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