This is the third installment in our sequence of posts that are aimed at enabling you to adequately understand and thoroughly get used to the different types of Japanese candlestick patterns. So far, we have comprehensively revised basic and single types. With your knowledge of them, you should already be able to anticipate potential market continuations and reversals.
In this post, you will be learning the most important features of double Japanese candlestick patterns that will enable you to easily identify them and use them as a guide in making your trading decisions.
Double Japanese Candlestick Patterns
Double Japanese candlestick patterns are those chart patterns that are made up of two consecutive candlesticks. Like the basic and single types, double Japanese candlestick patterns are used to detect potential market reversals and continuations.
They are of four types. These types are the Bullish and the Bearish Engulfing Candles and the Tweezer Tops and the Tweezer Bottoms. Both the Bullish Engulfing Candles and the Tweezer Bottoms are signals of bullish reversals. The Bearish Engulfing Candlesticks and the Tweezer Tops, conversely, are signals of bearish reversals.
The Bullish Engulfing Candlestick pattern is formed when a large bullish candlestick follows a small, bearish one. The large, bullish candlestick is said to “engulf” the small, bearish candle. Hence the name. This pattern has the implication that more and more market participants are buying and as a result, the overall market dynamics is shifting in favour of the buyers.
Hence, the pattern is formed at the end of a downtrend or after a period of market consolidation. The first candle of the pattern, the small bearish candle, indicates that sellers are losing steam. Conversely, the second candle, the large bullish candle, suggests that buyers have taken over and are now in charge.
The Bearish Engulfing Candlestick pattern, on the other hand, is formed when a large bearish candlestick follows a small, bullish one. Similar to the Bullish Engulfing Pattern, the large, bearish candlestick “engulfs” the small, bullish one. This pattern indicates that more and more traders are selling so the prevailing market trend may reverse soon.
As a result, this pattern is created at the end of an uptrend and at the beginning of a downtrend. The first candle, the small, bullish one, signifies that there is less and less buying market activity. The second candle, the large, bearish candle, signals that sellers are beginning to take over the market so you should be on the lookout for a trend reversal.
Summary: The Bullish and Bearish Engulfing Japanese Candlestick patterns are important references for market reversals. The Bullish Engulfing pattern has as its first component a small, bearish candlestick and as its second, a large, bullish candle. The Bearish Engulfing pattern, on the other hand, has as its first candle a small, bullish candle and as its second candle, a large, bullish one.
The Tweezer Tops dual candlestick pattern is formed when two candlesticks in opposite directions follow each other. They are formed at the end of uptrends to indicate the possibility of reversals after the market has been moving upwards. As a result, the first candlestick of the pattern is bullish while the second candle, being in the opposite direction, is bearish.
The Tweezer Bottoms pattern, similarly, is also made up of two candlesticks in opposite directions consecutively following each other. However, Tweezer Bottoms patterns are formed at the end of downtrends to signal the possible beginning of trends in the opposite direction. Thus, while the first candle of the pattern is bearish, the second candle is bullish.
Summary: The Tweezer Bottoms and the Tweezer Tops are dual candlestick patterns that indicate potential reversals. The Tweezer Bottoms pattern is made up of a bearish candle first and a bullish candle second. It is formed at the end of downtrends to signify the possible initiation of uptrends. The Tweezer Tops pattern, on the other hand, is made up of a bullish candle first and a bearish candle second. It is formed at the end of uptrends. Its formation indicates the possible initiation of downtrends. Therefore, the appearance of a Tweezer Bottoms pattern could be a good opportunity to buy while the appearance of a Tweezer Tops pattern could be a good opportunity to sell. However, as always, ensure reversals are confirmed first before you place your trades.
The Tweezer Tops and the Tweezer Bottoms patterns are easy to identify. In short, for the Tweezer Tops, the first candle is bullish. That is, it is in the direction of the terminating trend, an uptrend. For the Tweezer Bottoms, on the other hand, the first candle is bearish. That is, it is in the direction of the terminating trend, a downtrend.
For the Tweezer Tops, the second candle will be in the direction of the newly-initiated trend. That is, it will be bearish. Similarly, for the Tweezer Bottoms, the second candle will be in the direction of the newly-initiated trend. That is, it will be bullish.
So, once you have confirmed the trend reversal which any of the double candlestick patterns discussed here suggests, you can place your trade accordingly. However, if you do not want to go through the stress of looking for these patterns and identifying them yourself, you should consider the use of a signal service.
In this regard, 1000pipBuilder is all you need. We conduct independent research and thorough analyses using different candlestick techniques so you will not have to do that yourself. With us, you will get to eliminate all forms of bias that can meddle in your trading. So, sign up for any of our membership plans here. If you do, your chances for success will be better enhanced!