How to Trade Using Two-Candlestick Patterns

Karan Barwa
Nov 8, 2024
5 min read

Updated: Apr 23

Candlestick patterns consisting of two candles—one green and one red—are essential tools in technical analysis. These patterns provide traders with clear signals to open either an up trade or a down trade, depending on the market context. The advantage of these models is that they often yield leading signals, and their accuracy increases when the market is clearly trending either upward or downward.

Bullish Engulfing

The Bullish Engulfing pattern is a bullish reversal signal that occurs at the end of a downtrend.

Appearance: This pattern consists of a small red candle followed by a larger green candle that completely engulfs the body of the red candle.
Behavior: The Bullish Engulfing indicates that buyers have taken control, pushing prices higher after a period of selling.
Trading Signal: When you spot this pattern, it typically suggests the end of the downtrend and the beginning of an uptrend. Traders should consider entering an up trade.

Bearish Engulfing

The Bearish Engulfing pattern signals a bearish reversal at the end of an uptrend.

Appearance: This pattern consists of a small green candle followed by a larger red candle that completely engulfs the body of the green candle.
Behavior: The Bearish Engulfing indicates that sellers have taken control, driving prices lower after a period of buying.
Trading Signal: When you identify this pattern, it suggests the end of the uptrend and the beginning of a downtrend. Traders should consider entering a down trade.

Piercing Pattern

The Piercing Pattern is another bullish reversal signal that occurs at the bottom of a downtrend.

Appearance: This pattern consists of a long red candle followed by a green candle that opens below the red candle's body but closes above its midpoint.
Behavior: The Piercing Pattern indicates that buyers are starting to take control after significant selling pressure.
Trading Signal: While it suggests the beginning of an uptrend, this pattern is not as strong as the Bullish Engulfing. Traders should confirm this signal with other patterns before acting.

Piercing Pattern

Dark Cloud Cover

The Dark Cloud Cover pattern is a bearish reversal signal that typically appears at the top of an uptrend.

Appearance: This pattern consists of a long green candle followed by a red candle that opens above the green candle's body but closes below its midpoint.
Behavior: The Dark Cloud Cover indicates that sellers are starting to exert pressure after significant buying activity.
Trading Signal: This pattern suggests the beginning of a downtrend but is not as strong as the Bearish Engulfing. Traders should confirm this signal with additional analysis before making trades.

Bullish Harami

The Bullish Harami is another bullish reversal pattern indicating potential price increases.

Appearance: This pattern consists of a long red candle followed by a smaller green candle whose body is completely contained within the body of the red candle.
Behavior: The Bullish Harami suggests that selling pressure may be weakening and buyers are starting to enter the market.
Trading Signal: This pattern signals potential upward movement, but traders should analyze it alongside support levels for confirmation.

Bearish Harami

The Bearish Harami indicates potential price declines after an uptrend.

Appearance: This pattern consists of a long green candle followed by a smaller red candle whose body is completely contained within the body of the green candle.
Behavior: The Bearish Harami suggests that buying pressure may be weakening and sellers may start to dominate.
Trading Signal: This pattern signals potential downward movement, but traders should analyze it alongside resistance levels for confirmation.

Tweezer Tops

The Tweezer Tops pattern is a bearish reversal signal that typically appears at the end of an uptrend.

Appearance: This pattern consists of two candles: the first candle is a green (bullish) candle, and the second candle is a red (bearish) candle. Both candles have approximately the same high price.
Behavior: The presence of two candles with matching highs suggests that buying pressure is weakening, and sellers are starting to take control.
Trading Signal: When you identify a Tweezer Tops pattern, it indicates potential reversal from an uptrend to a downtrend. Traders should consider entering a down trade after confirmation from subsequent price action.

Tweezer Bottoms

The Tweezer Bottoms pattern is a bullish reversal signal that typically appears at the end of a downtrend.

Appearance: This pattern consists of two candles: the first candle is a red (bearish) candle, and the second candle is a green (bullish) candle. Both candles have approximately the same low price.
Behavior: The presence of two candles with matching lows suggests that selling pressure is weakening, and buyers are starting to enter the market.
Trading Signal: When you spot a Tweezer Bottoms pattern, it indicates a potential reversal from a downtrend to an uptrend. Traders should consider entering an up trade after confirmation from subsequent price action.

Summary of Two-Candlestick Patterns:

Pattern Name	Description	Trading Signal
Bullish Engulfing	A green candle engulfs a red candle, indicating potential upward movement.	Buy (up trade)
Bearish Engulfing	A red candle engulfs a green candle, indicating potential downward movement.	Sell (down trade)
Piercing Pattern	A green candle opens below and closes above the red candle's midpoint.	Buy (up trade)
Dark Cloud Cover	A red candle opens above and closes below the green candle's midpoint.	Sell (down trade)
Bullish Harami	A small green candle within the body of a larger red candle.	Buy (up trade)
Bearish Harami	A small red candle within the body of a larger green candle.	Sell (down trade)
Tweezer Tops	Two candles with matching highs after an uptrend.	Sell (down trade)
Tweezer Bottoms	Two candles with matching lows after a downtrend.	Buy (up trade)