How to determine the reversal signal by using candlestick chart?
Common Reversal Patterns of Candlestick
1. Engulfing Pattern
2. Piercing Pattern
3. Dark Cloud Cover Pattern
Engulfing Pattern consists of two-candlestick.
Bullish Engulfing Pattern is seen at the bottom of a downward price moves, which is the real body of green candle completely ‘engulfs’ the real body of the red one;
Bearish Engulfing Pattern appears at the top of an uptrend, which is the real body of red candle ‘engulfs’ the real body of the green one.
1. The market must be in a clearly visible uptrend or downtrend, even if the trend is short-term。
2. Must consist of two-candlesticks. The real body of the second candle must cover the real body of the first one, but the shadows are not engulfed.
3. The second candle must be the opposite color of the first one.
P.S: If the real body of the previous candle is smaller or shows a morning star pattern, no matter what color the second candle is, it may have a reversal meaning.
The piercing pattern is actually similar to the bullish engulfing pattern, but because of its different K-line performance and different degrees of bullish reversal expressed, that’s why we will talk about it separately.
1. The second candle must cover at least half of the real body of the first candle.
2. appears in a downtrend in price
3. The opening price of the second candle is at an important support levels.
4. There is a huge trading volume on the day of the Bearish candlestick.
Dark Cloud Cover Pattern
Dark Cloud Cover Pattern is similar with Bearish Engulfing Pattern, it is one of the more common patterns on the Candlestick.
This pattern is consisted of two-candlesticks. They generally appear after an uptrend, in some cases may also appear at the top of a horizontal correction range.
1. The opening price of the second candle must higher than the closing price of the first one.
2. In a clear uptrend.
3. The closing price must be falling sharply, and the second candle must pass through the half of the real body of the first one. Otherwise, the analysis is meaningless.
P.S: The more the real body of second candle pass through the real body of the first one, indicates that the market is more likely to peak and fall
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