We have established so far that candlesticks tell a story, but if a single candlestick tells us a story, a combination of 2 or 3 would be a symphony.
Understanding this could be crucial to your success, but what are these symphonies? Let’s dive right in.
The Engulfing Bars
The engulfing bars hold a special place in my heart, it was understanding this that gave me my aha moment some 15 years ago, and it has served me faithfully over the years, I hope it does for you as well, but you need to understand it enough to enjoy the goodness that it comes with.
There are 2 types of engulfing bars:
- Bullish engulfing bars
- Bearish engulfing bars
Bullish engulfing bars happen during down trends or bearish markets, and signals a reversal of the trend, indicating that a strong bullish move might be coming.
A bullish engulfing bar occurs when a bearish bar is immediately followed by a bullish candle, in such a way the body of the bullish candlestick closes higher than the body of the bearish candlestick.
Bearish engulfing bars signify the potential for a bearish trend, breaking away from the current bullish trend.
A bearish engulfing bar occur when a bullish candlestick is immediately followed by a bearish candle stick in such a way the body of the bearish candlestick closes lower than the body of the bullish candlestick.
Notice the engulfing bar in the image above? this is what happened next.
Power struggle candlesticks happen when there are two opposing candles of equal body width.
The perfect power struggles is one in which both body and tails of the two candles involved are same. This often signifies that both sellers and buyers are struggling or have equal purchasing power.
What happens next is that, often the market trends change after this candlesticks occur, why?
The answer is simple, if I have followed a trend and made money for a while, and now price is telling me that there is equal opposition to my position, I would gladly exit the market, many trader’s closing their positions in these situations, is what leads to the reversal in trend.
This is key, keep in mind, engulfing bars, and power struggle candles.