Chart school · lesson 3 of 10

Two-candle patterns: engulfing, harami, piercing line, tweezers

Two candles side by side show a change between one period and the next. Each pattern here has a rising form and a falling form.

The 8 drawings Check yourself

The idea

A two-candle pattern compares the second candle with the first. Did it cover the first candle's body, stay inside it, or stop at the same price?

These patterns are read after a run in one direction. The first candle belongs to the run, and the second one does something the run had not been doing. That is all a pattern can show: a change in behaviour over two periods.

3.1Usually read as bullish

Bullish engulfing

What it looks like: After a fall, a small falling candle is followed by a rising candle whose body covers the first candle's body completely: it opens at or below the first close and closes above the first open.
What traders read into it: Sellers were in charge for the first candle and were overrun in the second. Traders read it as buyers taking control.
Where it fails: In a sideways market, engulfing candles appear in both directions and cancel each other. A large second candle may also have already used up much of the move.

Bullish engulfing, in the Playbook

3.2Usually read as bearish

Bearish engulfing

What it looks like: After a rise, a small rising candle is followed by a falling candle whose body covers the first candle's body completely.
What traders read into it: Buyers held the first candle and were overrun in the second. Traders read it as sellers taking control.
Where it fails: A sharp fall inside a healthy uptrend is often bought again quickly. If the price closes back above the top of the pattern, the reading has failed.

Bearish engulfing, in the Playbook

3.3Usually read as bullish

Bullish harami

What it looks like: After a fall, a long falling candle is followed by a small candle whose body sits inside the long candle's body. It is the engulfing pattern in reverse order.
What traders read into it: The selling paused. A large move was followed by a period that could not extend it. Traders read it as the fall losing pace.
Where it fails: A pause is not a turn. After the small candle the price often continues the way it was going. On its own, a harami is among the weaker signals.

The harami, in the Playbook

3.4Usually read as bearish

Bearish harami

What it looks like: After a rise, a long rising candle is followed by a small candle whose body sits inside the long candle's body.
What traders read into it: The buying paused after a strong period. Traders read it as the rise losing pace.
Where it fails: Strong trends pause often and resume. A close above the long candle's high says the trend is simply continuing.

The harami, in the Playbook

3.5Usually read as bullish

Piercing line

What it looks like: After a fall, a long falling candle is followed by a rising candle that opens lower and then closes above the midpoint of the first candle's body, without covering it entirely.
What traders read into it: The period began with more selling and ended with buyers recovering more than half of the previous loss. Traders read it as a strong reply.
Where it fails: Less than half is not a piercing line, and even a full one fails if the next candle falls below the pattern's low. In markets that trade around the clock, the lower open is rare.

The piercing line, in the Playbook

3.6Usually read as bearish

Dark cloud cover

What it looks like: The mirror of the piercing line. After a rise, a long rising candle is followed by a falling candle that opens higher and then closes below the midpoint of the first candle's body.
What traders read into it: The period began with more buying and ended with sellers taking back more than half of the previous gain. Traders read it as a strong reply from sellers.
Where it fails: A close back above the top of the second candle cancels it. As with the piercing line, the higher open seldom happens in markets with no daily close.

Dark cloud cover, in the Playbook

3.7Usually read as bearish

Tweezer top

What it looks like: After a rise, two candles next to each other reach the same high, or very nearly. Usually the first rises and the second falls.
What traders read into it: The price was turned away at the same level in two periods running. Traders read that level as resistance.
Where it fails: Two matching highs are common on short timeframes. If the price closes above that shared high, the level has gone and so has the pattern.

Tweezers, in the Playbook

3.8Usually read as bullish

Tweezer bottom

What it looks like: After a fall, two candles next to each other reach the same low, or very nearly. Usually the first falls and the second rises.
What traders read into it: The price was held at the same level in two periods running. Traders read that level as support.
Where it fails: The level has held twice, which is not many times. A close below the shared low ends the pattern.

Tweezers, in the Playbook

SimulationEvery drawing is invented to show a shape as plainly as possible. None of them is a market, and a real chart is rarely this tidy. Educational information, not investment advice or a recommendation to trade.

To carry away

Lesson 3, in four lines.

01
Engulfing: the second body covers the first. Harami: the second body sits inside the first.
02
Piercing line and dark cloud cover turn on one test: did the second candle close past the middle of the first?
03
Tweezers mark one price that stopped the market twice.
04
Each pattern needs a run before it. Without one, there is nothing to reverse.

Check yourself

Three questions on this lesson.

Choose an answer and press Check. You can try each as often as you like. No answer is stored, nothing is sent anywhere and no score is kept.

Question 1 of 3
In a bullish engulfing pattern, what does the second candle's body do?
It sits inside the first bodyIt covers the first body completelyIt has the same low as the first
Question 2 of 3
What is the test for a piercing line?
The second candle closes above the midpoint of the first candle's bodyThe second candle has no wicksBoth candles have the same high
Question 3 of 3
A bearish harami forms in a strong uptrend. What has it shown?
That the uptrend is overThat sellers are now in controlThat one period failed to extend the rise

An explanation for study. It is not advice, a recommendation or a forecast. No pattern is reliable on its own, and a shape described here says nothing certain about what a price will do next.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose.

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The idea of this lesson

Lesson 3, in four lines.

Three questions on this lesson.

The idea of this lesson

Lesson 3, in four lines.

Three questions on this lesson.