Two-candle formations: engulfing, harami, tweezers
Two-candle formations are read from the position of two consecutive candles relative to each other. If the second candle engulfs the first, fits inside it, or reverses from the same level, the balance of power in the market may be shifting.
In the chart above, you see frames enclosing two consecutive candles together. The color of the frame indicates the formation's tendency: green for bullish, red for bearish. During playback, the name of each formation appears in the top bar.
The engulfing formation is the most well-known. In a bullish engulfing, a small bearish candle comes first, followed by a large bullish candle whose body completely covers the first candle. The sellers of the previous period are completely overwhelmed by the buyers in the next period. A bearish engulfing is the opposite. Our system follows TradingView's rule: the body of the first candle must be small, and the body of the second must be larger than average. Two ordinary candles are not considered 'engulfing'.
Harami is the opposite of engulfing: the body of the second candle fits inside the body of the first. A small candle following a large move indicates that the momentum of the move is slowing down. If the second candle is a doji, it is called a harami cross, and indecision is more pronounced.
Piercing pattern and dark cloud cover are mirror images of each other. In a piercing pattern, a bullish candle following a bearish candle closes above the midpoint of the previous candle's body. In a dark cloud cover, a bearish candle following a bullish candle closes below the midpoint of the previous body.
Tweezers bottom and tweezers top are when two candles reverse from the same level: the lows (or highs) of two consecutive candles are at almost the same price. The price has tried and failed to break through the same level for two periods in a row.
A doji star is a doji that opens with a gap after a long candle: sudden indecision after a strong move. All these formations tell the story of two periods; they carry more information than a single candle but should still be read in context.
How to read it
- First, check the context: a bullish engulfing is meaningful at the end of a downtrend, and a bearish engulfing at the end of an uptrend.
- Look at the bodies, not the shadows: engulfing and harami are body comparisons.
- Check if the formation appears in a support or resistance zone; a formation appearing at a level is more significant.
- Place the stop beyond the extreme point of the formation: below the lowest price of the two candles in a bullish engulfing.
Trap
Two-candle formations also appear frequently, and most do not lead to any reversal. The most common mistake is to mistake an engulfing pattern appearing in the middle of a horizontal band for a reversal signal: if there is no trend to reverse, a reversal formation is meaningless. The second trap is to consider a harami alone as a 'reversal'. A harami often only indicates a slowdown; the trend may continue in the same direction after a short break.
Tip
If a bullish engulfing appears at a support level, with increasing volume, and as the RSI turns from oversold, three separate pieces of evidence point in the same direction. You can look for this confluence in the evidence card on the analysis screen.
Glossary
- Engulfing
- A formation where the body of the second candle completely covers the body of the first.
- Harami
- A formation indicating a slowdown, where the body of the second candle fits inside the body of the first.
- Tweezers
- A formation where two consecutive candles reverse from the same level (low or high).
- Dark cloud cover
- A formation where a bearish candle following a bullish candle closes below the midpoint of the previous body.
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Read candle formations together with levels in an analysis →For information only, not investment advice.