The world of Japanese Candlesticks does not, by any means, set itself up on a pedestal and pretend that Candlestick Technical Analysis is the be-all and end-all of everything that is valuable about the field of technical analysis.
Rather, proponents of the Candlestick method of financial price reporting aver that all of the "Western" technical analysis Indicators are to be used in conjunction with the Candlesticks.
The process is decidedly additive, not exclusionary.
Candlestick Analysis is built upon two basic principles: (1) Candlestick patterns have forecasting value; (2) Candlestick patterns reveal the underlying psychology of traders as a group.
Candlestick analysis lives for reversals of trend.
Candlestick reversal patterns are Technical Analysis Indicators every bit as much as the standard "Western" technicals such as the Head & Shoulders Top, Moving Averages, Triangles, Stochastics, the RSI, the ADX, and Bollinger Bands.
It is suggested that the trader learn the 15 or so most prevalent and generally reliable Candlestick reversal patterns.
Some of them consist of only one price bar; some of them have two; and some of them consist of three.
The Dark Cloud Cover is a single black price bar which looms over a previous white bar, a threatening gesture.
The Shooting Star appears after a long uptrend in prices, above previous prices, looking down upon the world from above with its tiny head and long tail, looking every bit like a comet or, if you please, like a real shooting star.
It is a bearish predictive signal, often followed by substantial price falloff.
The Bearish Engulfing Pattern goes the Dark Cloud Cover one better by completely covering previous price action - "swallowing" it - and is a very bearish signal.
The "Last Bullish Engulfing" pattern occurs after a long uptrend.
We will likely see a black candle appear, which gives a hint that the trend may be coming to a halt.
Then the "Last Bullish Engulfing" white bar appears, a strong Up day, engulfing the black bar of the day before, as if to say "No you don't, all is well, let's keep this party going.
" But sometimes it's just a final fling of optimism - "walking past the graveyard" - and then the edifice collapses and prices fall.
So in actuality the "Last Bullish Engulfing" pattern is bearish.
The trick is to recognize it when we see it, and to take it as one of the valid technical analysis indicators predicting a possible change of trend to the downside.