Candlestick Patterns Part 2
The Morning and Evening Star The Morning and Evening Star patterns take their names from the planets Mercury (appears just before sunrise) and Venus (appears just before complete darkness sets in). As you can gather from the analogies they use to take their names they are both examples of reversal patterns. The Morning Star appears at the end of a downtrend (night-time) and signals the arrival of an up trend (day-time). It is technically a three-candle pattern however the Star is the second and smallest candle in the formation. The first is a long filled candle that makes new lows for the move. The second, or the Star, is a candle with a small body that gap opens lower than the low of the previous day. The body and wicks are small hence a low trading range for the day. This is followed by a large bodied, bull candle that signifies the arrival of some strong buying pressure. Conversely the Evening Star is a signal that a bull trend is about to come to an end. The Star of the formation must open higher than the previous day’s close and have a small trading range. It is sandwiched between first, a larger bodied bull candle and second, a large bodied bear candle. Bullish and Bearish Engulfing Bullish and Bearish engulfing are reversal patterns that consist of two candlesticks. As you would expect a Bullish Engulfing formation occurs at the end of a downtrend. It consists of a bear candle followed by a strong bull candle that opens lower and closes higher than the bearish price action that preceded it. This represents a strong psychological victory for the bulls because they have completely engulfed the previous days selling pressure. The previous trend was running out of momentum and the new trend has begun with gusto. The higher the volume on the Engulfing candle the higher the chance that the bottom will hold and the new trend will begin. The Bearish Engulfing formation represents strong selling pressure overwhelming and reversing an up trend. As above this pattern requires a strong candle completely engulfing the previous candle’s price action. Once again the greater volume on the engulfing candle the stronger the reversal signal. To view the diagrams that accompany this article please visit http://www.passion-trading.com/tutorials.technicalanalysis.candlestickpatternspart2.htm David Thorpe writes articles for http://www.passion-trading.com a free educational resource for traders of all experience levels. Over the coming days, weeks and months more and more content will be added to the site which includes an article section and a dictionary. |
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