Candlestick combinations

Why combinations beat single candles

A single candle shows one battle. Two or three candles show a shift: one side was in control, then the other took over — and you can see exactly where it happened. That is why combinations are generally considered more informative than single candles. Even so, they are hints, not guarantees.

Every pattern in this lesson is judged on the same four criteria as in reading candlesticks: location, prior trend, volume and confirmation. Learn the shapes, but trade the context.

Two-candle patterns

Engulfing

A bullish engulfing pattern: after a decline, a red candle is followed by a green candle whose body fully covers the red body — it opens at or below the red close and closes above the red open. In the first pair on the chart, the red candle runs $106.00 → $103.80 and the green one $103.50 → $107.00. Yesterday sellers were in control; today buyers erased their whole move and then some.

The bearish engulfing is the mirror image after a rally. For someone holding the stock, it is a warning to tighten the stop or take some profit.

What makes it stronger: the second body is much larger than the first; it also covers the first candle's wicks; it comes on above-average volume; it appears at a level.

Harami

Harami ("pregnant" in Japanese) is the opposite of an engulfing: a large candle followed by a small one whose body sits inside the first body. On the chart: a big red candle $108.60 → $102.80, then a small green one $103.60 → $105.00. The selling momentum suddenly stopped. A harami is weaker than an engulfing — it shows a pause, not a takeover — so it needs confirmation more than any other pattern here.

Piercing line and dark cloud cover

A piercing line: after a decline, a red candle, then a green candle that opens below the red close and closes above the midpoint of the red body, but below its open. On the chart the red body is $108.40 → $104.00, so the midpoint is $106.20; the green candle closes at $107.00. Above the midpoint means buyers recovered more than half of the loss.

Dark cloud cover is the bearish mirror: after a rally, a green candle ($102.40 → $106.90, midpoint $104.65), then a red candle that opens above its close and closes below the midpoint ($104.00).

Tweezer bottom and top

A tweezer bottom: two (or more) neighbouring candles with the same, or almost the same, low. The market tested that price twice and buyers defended it twice. A tweezer top is the same at the highs: in the last pair on the chart both highs are $107.40 — buyers failed to get past that price twice. On a daily chart "the same" usually means within a few cents.

Bullish engulfing in practice: a full plan

Here is how a pattern turns into a plan with numbers.

1. Context. A steady decline from $106 reaches a support zone at $95.50–$96.60.
2. Pattern. The red candle closes at $96.50; the next opens at $96.30, dips to $95.80 and closes at $98.30 — above the red open ($97.60). Volume is 95, against 36–58 on the previous candles: roughly double.
3. Entry. Don't buy at the close of the pattern candle. Place a buy stop order just above its high ($98.60), at $98.70: you only get in if the next candle keeps going up. Here the next candle reaches $99.70, so the order fills.
4. Stop. Just below the pattern low ($95.80), at $95.70. Risk per share: $98.70 − $95.70 = $3.00.
5. Target. At least 2R: $98.70 + 2 × $3.00 = $104.70. Price gets there seven candles later.
6. Size. With a $10,000 account and 1% risk ($100): $100 ÷ $3.00 = 33 shares, about $3,257 of stock. More in position size.