Patterns/ Two candles

Two candles 6 min read

Dark cloud cover

A long up candle, then a down candle that opens above its high and closes back below the midpoint of its body. The piercing line inverted, with the same half-measure built into the definition.

What the shape is

Two candles:

  • A long up candle.
  • A second candle opening above the first candle's high — the market gaps up, or opens at the best level of the session.
  • And closing below the midpoint of the first candle's body, but above its open. Close below the open and it is a bearish engulfing.

The session begins with everyone who was already long feeling vindicated, and ends with more than half of the previous period's gain erased. Whoever bought that opening is now holding a loss, and they bought at the highest price in the entire move.

When it means something

A dark cloud that heldIllustrative
The gap up, then a close well down inside the previous body. Price does not revisit that high in the periods afterwards. The opening print becomes the top of the move — which is the outcome the pattern is describing.

The mechanism here is the same one behind a failed breakout. A group of participants bought at the extreme and are now offside. Their desire to get out near breakeven is a real supply of selling sitting just above the market, and that is what tends to keep price from going back up there.

The same shape, meaning nothing

A gap up, bought backIllustrative
The identical two-candle structure in an advance that simply continued. Price was above the dark cloud's high within a few periods. In a market with momentum behind it, one bad session is one bad session.

Positioning against an advance on the strength of two candles is the expensive version of being wrong, and this pattern invites exactly that. The close above the pattern's high is the clean point at which it has been answered.

Telling them apart

  • Did it open genuinely above the prior high? If it merely opened high within the prior range, the pattern is not there.
  • Did the close clear the midpoint? Most candidates do not.
  • Was the high reclaimed? One close above it and the pattern is finished.
  • How extended is the advance? Early in a move these get absorbed. Late in one they are worth more.
The honest summary

A bearish engulfing that did not quite make it, and read correctly it is the weaker of the two. Its value is in identifying a specific price — the opening high — where a group of buyers is trapped. That price is checkable; the forecast is not.

Terms used

Dark cloud cover
An up candle followed by a down candle opening above its high and closing below the midpoint of its body.
Gap up
Opening above the previous period's high.
Trapped buyers
Participants who bought near a high and would sell near breakeven.
Reclaim
Price closing back above a level it had fallen below.

Patterns are the easy half

Reading the chart underneath them is the part that decides whether any of this is useful. The Charts track works through levels, volume, trend and timeframes from the beginning.

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