Two-candle patterns

Japanese name: dakisen – “embracing line”

A two-candle pattern: a small bearish candle followed by a large bullish candle whose body completely “engulfs” the body of the previous one. One of the most reliable reversal patterns.

How to recognize it

• Appears after a decline
• Candle 1: bearish (red) body
• Candle 2: a bullish body that opens at or below the close of candle 1 and closes above its open
• The bigger the second candle compared with the first, the stronger the signal

The psychology

Sellers start the period confidently, but buyers not only recover the loss, they close above the open of the previous candle. A complete change of control in just one period.

How to trade it

Entry

At the close of the engulfing candle (aggressive) or on a retest of 50% of its body (conservative).

Stop-loss

Below the low of the two candles.

Target

The previous lower high or 2–3R.

Japanese name: dakisen

A small bullish candle followed by a large bearish candle whose body completely engulfs the body of the previous one. A strong signal of a reversal to the downside.

How to recognize it

• Appears after a rise
• Candle 1: bullish body
• Candle 2: a bearish body that opens at or above the close of candle 1 and closes below its open
• Strongest at resistance or after a new high

The psychology

Buyers open hoping for continuation, but sellers take control and wipe out the entire gain of the previous period – and more. Sentiment turns.

How to trade it

Entry

At the close of the engulfing candle or on a bounce to 50% of its body.

Stop-loss

Above the high of the two candles.

Target

The previous higher low or 2–3R.

Japanese name: harami – “pregnant”

A large bearish candle followed by a small bullish candle whose body is completely inside the body of the first. “Harami” means “pregnant” in Japanese – the second candle is the “baby” in the womb of the first.

How to recognize it

• Appears after a decline
• Candle 1: long bearish body
• Candle 2: a small body, entirely within the body of candle 1
• Requires confirmation

The psychology

After strong downward pressure, the market suddenly contracts – volatility drops and sellers lose momentum. It's not a direct reversal, but a signal that the trend is stopping.

How to trade it

Entry

Above the high of candle 1 (conservative) or above the high of candle 2 (aggressive).

Stop-loss

Below the low of candle 1.

Target

2R or the next resistance.

Japanese name: harami

A large bullish candle followed by a small bearish candle whose body is completely inside the body of the first.

How to recognize it

• Appears after a rise
• Candle 1: long bullish body
• Candle 2: a small body inside the body of candle 1
• Requires confirmation

The psychology

The strong rally suddenly stops – buyers can't keep going. The shrinking range shows hesitation and a possible change of direction.

How to trade it

Entry

Below the low of candle 1 (conservative) or below the low of candle 2 (aggressive).

Stop-loss

Above the high of candle 1.

Target

2R or the next support.

Japanese name: harami yose sen

A variant of the bullish harami in which the second candle is a doji. The indecision is even more pronounced, so the signal is stronger than a regular harami.

How to recognize it

• Appears after a decline
• Candle 1: long bearish body
• Candle 2: a doji within the body of candle 1
• Confirmation – a bullish candle

The psychology

After a strong sell-off, the market suddenly freezes in complete equilibrium. Sellers have exhausted their strength.

How to trade it

Entry

Above the high of the doji/candle 1 after confirmation.

Stop-loss

Below the low of candle 1.

Target

2R.

Japanese name: harami yose sen

A large bullish candle followed by a doji within its body. A stronger variant of the bearish harami.

How to recognize it

• Appears after a rise
• Candle 1: long bullish body
• Candle 2: a doji inside the body of candle 1
• Confirmation – a bearish candle

The psychology

The buyers' enthusiasm vanishes within a single period. The market is in complete indecision right after a strong show of strength – a typical sign of exhaustion.

How to trade it

Entry

Below the low of the doji/candle 1 after confirmation.

Stop-loss

Above the high of candle 1.

Target

2R.

Japanese name: kirikomi sen

A long bearish candle followed by a bullish candle that opens below the low (or close) of the first and closes above the middle of its body, but not above its open.

How to recognize it

• Appears after a decline
• Candle 1: long bearish body
• Candle 2: opens below the close/low of candle 1
• Candle 2 closes above 50% of the body of candle 1 (but below its open)

The psychology

The market opens even lower – sellers are confident. But buyers “pierce” above the middle of the previous candle, which shows a serious shift in the balance of power.

How to trade it

Entry

At the close of candle 2 or above its high.

Stop-loss

Below the low of candle 2.

Target

The open of candle 1, then the next resistance.

Japanese name: kabuse sen

A long bullish candle followed by a bearish candle that opens above the high (or close) of the first and closes below the middle of its body.

How to recognize it

• Appears after a rise
• Candle 1: long bullish body
• Candle 2: opens above the close/high of candle 1
• Candle 2 closes below 50% of the body of candle 1

The psychology

The market opens at a new high – buyers are celebrating. But sellers cover the sky like a “dark cloud” and drive price deep into the body of the previous candle.

How to trade it

Entry

At the close of candle 2 or below its low.

Stop-loss

Above the high of candle 2.

Target

The open of candle 1, then the next support.

Japanese name: kenuki soko

Two consecutive candles with equal (or nearly equal) lows after a decline. Usually the first is bearish and the second bullish.

How to recognize it

• Appears after a decline
• Two equal lows (a few pips of tolerance)
• Candle 1 usually bearish, candle 2 bullish
• Strongest at support

The psychology

The market tests the same level twice and both times buyers defend it. The level is “double-confirmed” as support.

How to trade it

Entry

Above the high of candle 2.

Stop-loss

Below the shared low.

Target

2R or the next resistance.

Japanese name: kenuki tenjo

Two consecutive candles with equal highs after a rise. Usually the first is bullish and the second bearish.

How to recognize it

• Appears after a rise
• Two equal highs
• Candle 1 usually bullish, candle 2 bearish
• Strongest at resistance

The psychology

Buyers try twice to break through a level and both times they're rejected. Sellers defend the high.

How to trade it

Entry

Below the low of candle 2.

Stop-loss

Above the shared high.

Target

2R or the next support.

A bearish candle followed by a bullish candle that opens with a gap ABOVE the open of the first and continues higher. One of the strongest reversal signals.

How to recognize it

• Candle 1: bearish
• Candle 2: bullish, opens at or above the open of candle 1 (gap)
• The two bodies don't overlap
• Usually triggered by news

The psychology

A sharp shift in sentiment – most often because of unexpected news. The market “kicks” the sellers and all the shorts are losing from the open.

How to trade it

Entry

At the close of candle 2 or on the first retest of the gap.

Stop-loss

Below the low of candle 2 (or below the gap).

Target

2–3R, watch the impulse.

A bullish candle followed by a bearish candle that opens with a gap BELOW the open of the first and continues lower.

How to recognize it

• Candle 1: bullish
• Candle 2: bearish, opens at or below the open of candle 1
• The bodies don't overlap
• Usually after a fundamental shock

The psychology

The market reverses suddenly and dramatically. Everyone who bought during candle 1 is losing from the very first second of candle 2.

How to trade it

Entry

At the close of candle 2 or on a retest of the gap from below.

Stop-loss

Above the high of candle 2.

Target

2–3R.

Two bearish candles, with the body of the second completely inside the body of the first. It resembles a harami, but both candles are the same color.

How to recognize it

• Appears in a downtrend
• Two bearish candles
• The body of candle 2 is inside the body of candle 1
• Requires confirmation

The psychology

Sellers are still in control, but the pressure is weakening significantly – the second candle fails to make a new low.

How to trade it

Entry

Above the high of candle 2 after confirmation.

Stop-loss

Below the low of candle 1.

Target

2R.

Two bearish candles that close at the same level after a decline. The closes form short-term support.

How to recognize it

• Appears in a downtrend
• Two bearish candles
• Equal (or nearly equal) closes
• Requires bullish confirmation

The psychology

Sellers fail twice to close below the same level. Support forms.

How to trade it

Entry

Above the high of candle 2.

Stop-loss

Below the lows.

Target

2R.

Japanese name: atekubi

A long bearish candle followed by a small bullish candle that opens below the low and closes right at the level of the first candle's close (low).

How to recognize it

• Downtrend
• Candle 1: long bearish body
• Candle 2: small bullish, opens lower
• Candle 2 closes at the level of candle 1's close

The psychology

Buyers attempt a bounce, but it's weak – they barely reach the close of the previous candle. Sellers stay in control.

How to trade it

Entry

Below the low of candle 2.

Stop-loss

Above the high of candle 2.

Target

The next support.

Japanese name: irikubi

Like the “On-Neck”, but the bullish candle closes slightly above the close of the first – just barely into its body.

How to recognize it

• Downtrend
• Candle 1: long bearish body
• Candle 2: bullish, opens below the low of candle 1
• Closes slightly above the close of candle 1 (no more than ~10–15% into the body)

The psychology

The bounce is a bit stronger, but far from enough. The market will most likely continue lower.

How to trade it

Entry

Below the low of candle 2.

Stop-loss

Above the high of candle 2.

Target

The next support.

Japanese name: sashikomi

The bullish candle penetrates deeper into the body of the bearish one, but closes BELOW its middle. If it closes above the middle – it becomes a piercing line (a bullish reversal).

How to recognize it

• Downtrend
• Candle 1: long bearish body
• Candle 2: bullish, opens below the low of candle 1
• Closes inside the body of candle 1, but below 50%

The psychology

Buyers show strength, but not enough. It's a borderline pattern – often a warning that the downtrend is weakening.

How to trade it

Entry

Below the low of candle 2 – only with confirmation.

Stop-loss

Above the high of candle 2.

Target

The next support.

Japanese name: furiwake sen

In an uptrend, a bearish candle appears, followed by a bullish candle that opens at the same level where the bearish one opened and continues higher.

How to recognize it

• Uptrend
• Candle 1: bearish (pullback)
• Candle 2: bullish, opens at the open of candle 1
• Candle 2 closes high

The psychology

The pullback from candle 1 is wiped out immediately – buyers open where the sell-off began and continue the trend.

How to trade it

Entry

At the close of candle 2.

Stop-loss

Below the low of candle 2.

Target

The next resistance / trend extension.

Japanese name: furiwake sen

In a downtrend, a bullish candle appears, followed by a bearish one that opens at the same level as the bullish one and continues lower.

How to recognize it

• Downtrend
• Candle 1: bullish (pullback)
• Candle 2: bearish, opens at the open of candle 1
• Candle 2 closes low

The psychology

The buyers' bounce is wiped out right at the open. Sellers continue the trend.

How to trade it

Entry

At the close of candle 2.

Stop-loss

Above the high of candle 2.

Target

The next support.