Engulfing patterns and tweezers

Before reading this lesson, you should have previously read through:

Using candlesticks in conjunction with each other can indicate the market sentiment by highlighting a shift in power between the buyers and the sellers. Candlestick patterns can therefore provide signals, such as a reversal or a continuation of price action.

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The engulfing pattern

An engulfing pattern is a strong reversal signal. There are bullish and bearish engulfing patterns and they are composed of two candlesticks – one bullish and one bearish. There are three main criteria for an engulfing pattern:

The engulfing pattern is a strong reversal signal that can be bullish or bearish and is composed of two candlesticks – the body of the second candlestick must engulf the body of the preceding body.

  1. There has to be a confirmed uptrend or downtrend, even if it is short-term. The market must not be ranging (going sideways).
  2. The body of the first candlestick must be smaller than the second one. The second body must engulf the preceding body. It is not necessary for the second body to engulf the actual wick of the first candlestick, although this does create an even stronger signal.
  3. The second candlestick body must be opposite to the first candlestick body, i.e. if the first candlestick is bullish, the second candlestick must be bearish.

Note that the strongest engulfing pattern is one where the whole candle engulfs the prior day's range from high to low, not just the body, generating a strong signal of the imminent market reversal.

Bullish engulfing pattern

The following example shows a bullish engulfing pattern signalling the reversal of a downward trend and demonstrating how the sellers were overpowered by the buyers.

Engulfing bullish

number_1 The first candlestick is bearish.
number_2 The second candlestick is bullish and engulfing the body of the preceding bearish candlestick.

You can practice finding bullish engulfing patterns in the following exercise:

Exercise: Find bullish engulfing patterns in a chart Show exercise

Bearish engulfing pattern

The following example shows a bearish engulfing pattern signalling the reversal of an uptrend and demonstrating how the buyers were overpowered by the sellers.

Engulfing bearish

number_1 The first candlestick is bullish.
number_2 The second candlestick is bearish and engulfing the body of the preceding bullish candlestick.

You can practice finding bearish engulfing patterns in the following exercise:

Exercise: Find bearish engulfing patterns in a chart Show exercise

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Tweezers top and bottom

Tweezers are formed by two candlesticks that have matching highs or lows. As the two wicks have the same height, it appears as a pair of tweezers; a discrepancy of a few pips is acceptable.

Tweezers are formed by two candlesticks that have matching highs or lows.

The market should be in a confirmed uptrend or downtrend for the signal to be a valid reversal.

Tweezers top

In the example provided below, there are two candlesticks at the end of an uptrend.

Tweezer top chart pattern

number_1 The first candle is bullish and the second candle is bearish. The wicks are of equal length and the highs are at the same level.

The wick of the first candlestick shows that the buyers have been overpowered by the sellers. The second wick represents a second attempt by the buyers to continue pushing the price up and then being overcome again by the sellers. After two unsuccessful attempts by the buyers to continue the trend upwards, the buying pressure eases off and the bears successfully push the price back to the downside.

You can practice finding tweezers top patterns in the following exercise:

Exercise: Find tweezers top patterns in a chart Show exercise

Tweezers bottom

The following example shows a tweezers bottom pattern after a downtrend.

Tweezer bottom chart pattern

number_1 The lower wicks are of equal length and the lows are at the same price level.

The term "reversal signal" can be slightly misleading when used with candlestick patterns. A long-term trend (i.e. hourly time frames or above) could take some time to change after you see a pattern form. The reversal could happen in stages and not immediately after the formation of a candlestick pattern.

The wick of the first candlestick shows that the sellers have been overpowered by the buyers. The second wick represents a second attempt by the sellers to continue pushing the price back down and then being overpowered by the buyers. After two unsuccessful attempts by the sellers to continue the trend down, the selling pressure eases off and is eventually overpowered by the bulls.
Variations

The bodies or wicks do not have to be exactly the same size or even in consecutive order.

The important aspect when looking for a tweezers pattern is two wicks with equal highs. This indicates that either the buyers or the sellers were eventually overpowered, indicating a reversal.

You can practice finding tweezers bottom patterns in the following exercise:

Exercise: Find tweezers bottom patterns in a chart Show exercise

Summary

So far, you have learned that ...

  • ... engulfing candlestick patterns indicate a reversal, but not necessarily an immediate or significant reversal.
  • ... in a bullish engulfing pattern, the first candlestick is bearish and the second is bullish and the body of the bullish candlestick must engulf the preceding bearish candlestick.
  • ... in a bearish engulfing pattern, the first candlestick is bullish and the second one is bearish and the body of the bearish candlestick must engulf the preceding bullish candlestick.
  • ... a tweezers top and bottom signal a reversal pattern.
  • ... for a tweezers top and bottom, one candle is bullish and the second candle is bearish and the wicks should be of equal length.

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  • Hello, to find trade opportunities with these indicators, which chart is best to use? m1 m5 m30 h1 ...
    It is correct to see a trend using m30 or m15 and then open a chart m1 looking for a reversal to that trend and trade quickly?
    the question is about engulfing pattern and tweezers, but also on hammer, hanging man, shooting star ...
    thanks very much
  • Hi gatfun
    You can apply these candlestick patterns to any time frame that suits your trading style.
    Yes you are correct in using a longer time frame such as 1H or 30m to establish market direction and a shorter time frame (no longer than 25% of the longer one) to give you entry and exit points. The Beginners strategy uses 30M and 5M but you could also use 1H and 15M for example.
    Good luck with your trading journey biggrin
  • Ok, thanks very much Tobester.

    Then, It's correct using 5m and 1m for beginner strategy? Thanks again
  • super lesson good teaching thank you
  • Then, It's correct using 5m and 1m for beginner strategy? Thanks again
  • hi,
    great lesson like always.
    i would like ask in how many case we can find 2 consecutive different candle with different high if first is bullish or low if first is bearish?
    This indicator is considerated strong? how many in 1-10 scale( if there is an answer ) ?
    Thanks
  • Hi,

    How do you mean how many cases we find 2 consecutive patterns?
    As for the strength it is hard to put a number between 1-10 on it.
    You would have to backtest it for yourself, everyone looks at these patterns differently.

    Regards,
    Timothy
  • Sry for my terrible english wink
    I meant that normally 2 consecutive candlesticks are almost always the same low if the first is bear and the same high if the first is bull, right?
    For this I was wondering if this pattern may mislead more often than others, but u answered me suggesting to backtest.
    Thanks wink
  • Gisca:

    I meant that normally 2 consecutive candlesticks are almost always the same low if the first is bear and the same high if the first is bull, right?

    That exactly renders the engulfing so powerful because it shows a false break and then turns around. It is actually stop hunting at its best in front of our eyes.
  • What i am really curios about , is on what type of chart is the best to look for tweezer and mostly for these signals in this lesson ?
    Thanks in advance.
  • Hi HosmanF,
    Actually any chart would do but bear in mind higher timeframes provide more reliable signals and the lower you go the more noise and fake signals you get. Regards.
    Peter
  • Thank you Peter ( or Hindsighthero ) for providing a much needed information, i felt really confused earlier hence the small chat shout , but the answer received its more the helpfull.
    Thanks again Peter , i wish you a great evening.
    Florin.
  • It's a good lesson... smile
  • thanks for tweezer and elgulfing lesson. I had read the book with candlestick patterns back then but I don't get it as tradimo made it so simple. keep it up guys. smile
  • why other 2 candle is not included namely harami, dark cloud cover & Piercing Pattern?
  • Hi Faststare,
    i take it as a suggestion and forward it to our content production team...
    Regards.
    Peter
  • Hi there,
    The lessons are really good. Thanks
    English is not my native language, so I'm a little confused, At the begining of this lessons is said:
    "The engulfing pattern is a strong reversal signal"
    And at the end is mentioned that:
    "engulfing candlestick patterns indicate a reversal, but not necessarily an immediate or significant reversal."
    Isn't this controversial?
    Am I missing something?
  • Hi markjp1M,
    Engulfing candles are indeed strong reversal signals but what the second sentence is saying that they won't always signal an immediate and/or long lasting reversal. But combined with other technical tools they can put the odds in your favor. Does that make sense? Regards.
    Peter

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