8.1 – Multiple candlestick patterns
The trader needed just one candlestick to identify a trading opportunity in a single candlestick pattern. However, when analyzing multiple candlestick patterns, the trader needs two or three candlesticks to identify a trading opportunity—elaborated more in the Video.
In the following Video, we will dive into support and resistance.
We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- Multiple candlestick patterns evolve over two or more trading days.
- The bullish engulfing pattern evolves over two trading days. It appears at the bottom end of a downtrend. Day one is called P1, and day two is called P2.
- P1 is a red candle in a bullish engulfing pattern, and P2 is a blue candle. P2’s blue candle completely engulfs P1’s red candle.
- A risk-taker initiates a long trade at the close of P2 after ensuring P1 and P2 together form a bullish engulfing pattern. A risk-averse trader will start the business the day after P2, near the close of the day.
- The stop loss for the bullish engulfing pattern is the lowest low between P1 and P2.
- The bearish engulfing pattern appears at the top end of an uptrend. P2’s red candle completely engulfs P1’s blue candle.
- A risk-taker initiates a short trade at the close of P2 after ensuring P1 and P2 together form a bearish engulfing pattern. After confirming the day includes a red candle, the risk-averse trader will start the business the day after P2.