Double Candlestick Formations


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Video Transcript:

Hello, traders. Welcome to the 2nd Module of the Advanced Technical Analysis Course: Candlestick Formations. In this lesson we’re going to review the double candlestick formations. As its name implies, these are patterns that are formed with two candlesticks. First of all, we’re going to review the engulfing patterns. An engulfing pattern is a strong reversal patters. These patterns are composed with two candlesticks, one Bullish and one Bearish. To be able to use them, the market must be trending. And there’s a rule that we need to follow. The body of the second candlestick must be bigger than the body of the first candlestick, as to engulf it.

Now let’s go through the bearish engulfing pattern. This pattern is found at the end of an up move. At a resistance zone the last blue candle, or the last Bullish Candle, is engulfed by a Bearish Candle. And here’s an example of the pattern in play. As you can see here we were in an up move, and the last blue candle is engulfed by a red candle or a Bearish Candle. And this is a strong signal of reversal at the end of an up move at a resistance zone. If you find this Bearish engulfing pattern you should be able to short the asset that you are monitoring.

Now let’s go to the Bullish engulfing pattern which is the opposite of the Bearish engulfing pattern. This pattern is found at the end of a down move. At a support zone the last red candle, or Bearish Candle, is engulfed by a Bullish Candle. And here’s an example of a Bullish engulfing pattern. You can see that we were in a down move. In a support area, the last Bearish Candle is engulfed by a much bigger Bullish Candle giving us a reversal signal to go long on the asset that we are currently monitoring. And this engulfing pattern, as all technical analysis, can be used in either Forex, stocks, commodities, etcetera.

Now let’s go to the second type of double candlestick formations, the tweezer patterns. We call them tweezer top and tweezer bottom. These two tweezer patterns are also reversal patterns found at the top of an up move or at the end of a down move. They are formed by two candlesticks that have a matching high or low. It means that the last two candlesticks have the same weak link. For the pattern to be most effective we have a couple of rules too.

The first candle should be the same color of the trend. This means that in an up move the first candle of the pattern should be blue, or bullish, and in a down move the first candle of the pattern should be red, or bearish. The second candle should be the opposite color which means that in a tweezer top formation the second candle should be Bearish, and in a tweezer bottom the second candle should be Bullish. The market must be trending. These patterns, because they are reversal patterns, don’t work in ranging markets.

Now let’s go to the tweezer top pattern. As we said before, this pattern is found at the end of an up move. At a resistance zone the last blue candle, or Bullish, and the first Bearish Candle have the same high equal length of their wicks. Now let’s go through an example of a tweezer top pattern. This pattern is found at the end of an up move as you can see here. The first candle of the pattern is a Bullish Candle, and the second candle of the pattern is a Bearish Candle denoting their reversal, and both candles have the same high or the same wick length.

Now the tweezer bottom pattern. This pattern is found at the end of a down move. At a support zone the last red candle, or Bearish Candle, and the first Bullish Candle have the same low. As you can see here, we move all the way down here, and we made this low with the last red candle. And the next candle, which is the second candle of the pattern, is a Bullish Candle that has the same low, meaning that we have a double rejection of the support zone and a reversal is in play. So when you see a double or a tweezer top pattern at a resistance zone at the end of an up move, of course, you can go short on the asset that you are monitoring, and when you see a tweezer bottom pattern at the end of a down move at an area of support you can go long on whatever instrument you are analyzing.

Adam

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