Monday, October 31, 2011

High Wave & Engulfing Pattern

Combination of CandleSticks:
Candlesticks are important signals individually. However combination of candlesticks can also generate very strong reversal signals.
1. High Wave
A group of candlesticks that have small bodies and long shadows are called High Wave. High Wave is a very strong reversal signal at the top of an uptrend or bottom of a downtrend.
2. Engulfing Pattern
This pattern is a very strong reversal signal at the end of a trends. Engulfing pattern is formed by two candlesticks with different colors. The body of the second candlestick should completely engulf the first one. The shadows may also be engulfed but it is not necessary. The first candlestick can also be a Doji.

Engulfing pattern is stronger when the first candlestick has a small and the second candlestick has a big body. Also when the second candlestick engulfs more than one candlestick, the pattern is stronger.