Multiple Candlestick Patterns 

Earlier we found out what single candlestick patterns are and its types, where in, in case of single candlestick patterns, trading opportunity can be identified by just single candle. But in case of multiple candlestick patterns, two or more is needed in order for analyst to identify potential trade. There are various multiple candlestick patterns, let us learn few.

Engulfing pattern 

It is of two types :

1. Bullish Engulfing pattern.
2. Bearish Engulfing Patter.


1. Bullish Engulfing pattern

This pattern needs minimum two candles of any time frame to identify the trading opportunity. First candle should be red candle at the bottom end of downward rally i.e. its low should be lower than the previous candle. Second candle should be green candle and it should be long enough to engulf the previous red candle. Then such formation will result in potential bullish trend which any trader can convert it into a profitable opportunity. Also, If you have already taken 'long' position, and then green candle forms where in, it engulfs previous candle( color does not matter) , then it is confirmation that the trend will be in continuation and trader can hold the position.



Following observations can be made in the above ITC chart,

1. Red candle is formed at the bottom end of downward rally forming new low. 
2. Green candle is formed long enough to engulf the previous red candle.
3. Such candle formation indicates the signal that there can be potential reversal of trend and trader can take 'long' position keeping stop loss few points below the green candle to avoid too much loss.
4. Red candle is formed again the next day, but it was not successful in engulfing the green candle , so we can hold the position and we can observe there is long upward rally post that.




Also above is another example shown in the Hindustan unilever chart, where in , there is formation of bullish engulfing pattern at the bottom end of small downward rally, if correctly identified can lead into huge profitable opportunity.




In the above Infy chart, we can observe that, there is already bullish trend prior to the formation of engulfing pattern, but in this case, it gives an additional confirmation to trader by giving signal that trend will continue and there will be no reversal.


2. Bearish Engulfing Pattern

Even this pattern needs minimum two candles, one should be green candle formed at the top end of upward rally and another candle should be red candle long enough to engulf the previous green candle, then it indicates potential reversal of trend. Also, if it appears in the downward rally, it can be considered as an additional confirmation that trend will continue and trader can hold the position.




We can make the following observations in the above bank nifty chart :

1. Prior trend is uptrend.
2. Red candle occurred at the top end of bullish pattern, long enough to engulf the previously formed green candles.
3. It indicates the reversal of trend and if identified correctly, an analyst can take advantage of potential opportunity. 
4. It is always better to keep stop loss just few points above the bearish candle, just in case, potential reversal of trend does not happen and we should not incur too much loss. In the above chart, we can observe that, if identified it can give us huge downward rally.


Same phenomenon explained above can be observed in the above chart.

    

To summarize:

1. Bullish engulfing pattern is when green candle engulfs the red candle formed. If formed at the bottom end of downward rally, then it results in potential reversal of trend and if it is formed in already existing bullish trend, then it provides confirmation that the trend will be in continuation and trader can hold the position.
2. Bearish engulfing pattern is when red candle engulfs the green candle formed. If formed at the top end of upward rally, then it results in potential reversal of trend and if it is formed in already existing bearish trend, then it provides confirmation that the trend will be in continuation and trader can hold on to his position.
3. This pattern is much reliable with more success rate. But it also comes with risk, to avoid huge losses, set stop loss just few points below/above the candle  as the case may be, based on which trade is initiated. This will result in minimum loss.






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