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ASX Charting Course
Chapter 46 Candlesticks Formations III
Engulfing Bearish This formation is a bearish signal, the result of two consecutive price bars where the real body of the second bar completely engulfs the real body of the first bar. There are two other requirements before it can be labelled as an engulfing bearish formation. The first is that the formation must occur in a clear uptrend and the second that the first bar is an up bar or candle and the second bar is a down bar. An up bar is one where the close is higher than the open, which appears as a hatched or filled real body in the diagram. A down bar is where the close is lower than the open resulting in a non-hatched real body.
Fig 74 – Engulfing Bearish Formation
Engulfing Bullish This formation occurs at the end of a down trend. In fact it requires a down trend to exist. Like the bearish version of the signal it is made up of two candles. The second candle’s real body should completely engulf the real body of the first candle. In addition the first candle should be a down candle followed by an up candle for the second bar in the formation.
Fig 75 – Engulfing Bearish Formation
Dark Cloud This formation occurs at the end of an up trend and signals a reversal, it’s a bearish signal. There are two candles required to make the formation and the first real body should be clear strong, relatively long. The second candle should be a down candle. The higher side of the real body should be higher than the previous real body and the lower side of the real body should be at least half way down into the previous real body.
Fig 76 – Dark Cloud Formation
Craig MacLean is a Futures Adviser Licensed under the Australian Securities Commission, Corporations Law. The writer accepts no responsibility for any losses incurred from any action or inaction derived from the advice in this report.