The Synapse Network

Bullish Gapping Play & Bearish Gapping Play

Bullish Gapping Play

Definition

A bullish gapping play structure is comprised of three Japanese candlesticks.

The first two are small and bullish (green), indicating hesitation.

The opening of the third candlestick occurs with a bullish gap, and this candlestick must be large.

Illustration

bullish caping

Characteristic

A bullish gapping play follows a period of hesitation, represented by small candlesticks, after a significant increase characterized by several large green Japanese candlesticks.

The small candlesticks before the gap must remain in the upper area of the last large candlestick.

Significance

A bullish gapping play is a continuation pattern, serving as a strong signal that the bullish movement will continue.

Note

A bullish gapping play is considered stronger if the candlestick before the gap is red.

Invalidation

If the next candlestick is not bullish or does not open with a bullish gap, the bullish gapping play structure is invalidated.

Bearish Gapping Play

Definition

A bearish gapping play structure is comprised of three Japanese candlesticks.

The first two are small and bearish (red), indicating hesitation.

The opening of the third candlestick occurs with a bearish gap, and this candlestick must be large.

Illustration

bearish gaping

Characteristic

A bearish gapping play follows a period of hesitation, represented by small candlesticks, after a significant decline characterized by several large red Japanese candlesticks.

The small candlesticks before the gap must remain in the lower zone of the last large candlestick of the descent.

Significance

A bearish gapping play is a continuation pattern, serving as a strong signal that the bearish movement will continue.

Note

A bearish gapping play is considered stronger if the candlestick before the gap is green.

Invalidation

If the next candlestick is not bearish or does not open with a bearish gap, the bearish gapping play structure is invalidated.

Concluding Thoughts

The bullish and bearish gapping play patterns are important continuation signals in technical analysis, highlighting potential ongoing trends after brief periods of hesitation.

These patterns gain additional strength if the candlestick preceding the gap is of the opposite color, suggesting a failed attempt to reverse the trend.

However, traders should always be vigilant and confirm the pattern with subsequent candlestick behavior, as invalidation occurs if the next candlestick does not follow the expected direction with a gap.

As with all technical indicators, it’s advisable to use these patterns in combination with other analytical tools for a well-rounded trading strategy.

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The Synapse Network

Bullish Gap & Bearish Gap Candlestick Pattern

Bullish Gap

Definition

A bullish gap is defined as a Japanese candlestick with an opening price higher than the closing price of the previous candlestick.

It generally occurs in a bullish trend.

bullish gap

Characteristic

A bullish gap often forms after a significant increase characterized by several large green Japanese candlesticks.

Significance

A bullish gap is a continuation pattern, indicating the continuation of the bullish movement.

Note

A bullish gap can occur in a bearish trend, often following unexpected news from investors.

In this scenario, the bullish gap is less relevant than in a bullish trend.

However, it may indicate a breakthrough gap suggesting a potential trend reversal.

Invalidation

If the lowest point of the candlestick after the gap is surmounted by the next candlestick, the structure can be considered invalidated.

Bearish Gap

Definition

A bearish gap is defined as a Japanese candlestick with an opening price lower than the closing price of the previous candlestick.

It generally occurs in a bearish trend.

bearish gap

Characteristic

A bearish gap often forms after a significant decline characterized by several large red Japanese candlesticks.

Significance

A bearish gap is a continuation pattern, indicating the continuation of the bearish movement.

Note

A bearish gap can occur in a bullish trend, often following unexpected news from investors.

In this scenario, the bearish gap is less relevant than in a bearish trend.

However, it may indicate a breakthrough gap suggesting a potential trend reversal.

Invalidation

If the highest point of the candlestick following the gap is surmounted by the next candlestick, the structure can be considered invalidated.

Concluding Thoughts

Both bullish and bearish gaps are important indicators within technical analysis, signaling the continuation of existing trends.

While they are typically more relevant within their respective trends, unexpected occurrences can lead to breakthrough gaps, potentially indicating trend reversals.

Understanding these patterns and knowing when they are invalidated can provide valuable insights for traders, helping them make informed decisions based on market behavior.

However, as with all technical indicators, it’s essential to use these gaps in conjunction with other tools and analysis to ensure a comprehensive trading strategy.

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The Synapse Network

Rising Window & Falling Window Pattern

Rising and Falling Window Candlestick Pattern

The support and resistance zones of Window candlestick patterns are highly rigid.

In the case of a Falling Window candlestick pattern, a stiff resistance region is generated, which provides a higher probability of trade opportunities during consecutive re-tests of the resistance area.

Similarly, a stiff support region is generated in the case of a Rising Window candlestick pattern, also offering better trade opportunities during consecutive re-tests of the support area.

In today’s blog, we will discuss how to use the Rising and Falling Window Candlestick Pattern in detail.

What is Rising Window Candlestick Pattern?

To form a Window (whether rising or falling), there must be space between the real bodies of two candles, and even their shadows should not overlap.

During an uptrend, a Rising Window is a price gap that forms.

The space between the candles represents the distance between the high of the previous candle and the low of the current candle.

This trend indicates that the bulls are in control, and the price is likely to continue rising.

Examine the size of the gap to better understand the pattern’s message.

For example, a large gap denotes a significant price increase, while a small gap indicates a modest and possibly insignificant price change.

Formation

The Rising Window, also known as a “gap up,” appears when the price continuously rises.

It is always regarded as a bullish signal.

This pattern is common, though less frequent on charts with longer time scales.

Trading with Rising Window Candlestick Pattern

The chart typically begins with an upward trend.

At the start of this movement, the bulls create a gap up (i.e., a Rising Window) to demonstrate their strength.

The uptrend continues with predominantly white candles increasing steeply.

Eventually, when the trend reverses, the bears become strong enough to form a downward gap, known as a Falling Window.

This pattern indicates a significant shift in investor sentiment, with both a gap up and a gap down.

What is Falling Window Candlestick Pattern?

A Falling Window candlestick pattern refers to a price gap during a downward trend.

It must occur while the price trend is down, and it is always a bearish signal.

This continuation pattern is more common on charts with shorter time scales, though it is less frequent on longer time scales.

Due to its prevalence, it’s crucial to pay attention to the specific characteristics of each Falling Window, as these details can help determine the importance of the signal and whether it warrants attention.

Formation

When observing the two candles that follow the Falling Window, examine them closely.

If these candles do not close the window or fill the gap (including their shadows), a Downside Tasuki Gap pattern may have formed.

For this pattern to qualify, the first and second candles must be bearish, while the third must be bullish.

After a significant downturn, as indicated by the gap down, the bulls may attempt to push the price back up.

However, if they fail, the decline is likely to continue.

What is the Falling Window Candlestick Pattern?

A Falling Window candlestick pattern is a bearish continuation pattern that results from a gap down between two consecutive candlesticks.

There is a “window” or space between the first and second candlesticks because the opening price of the second is lower than its closing price.

What is the Rising Window Candlestick Pattern?

The Rising Window is a bullish continuation pattern in Japanese candlestick charting.

It typically manifests as a rejection from lower prices and appears as a pause following an upward price trend.

This pattern is considered bullish, as it suggests a continuation of the upward movement after the Rising Window appears at the right time.

Concluding Thoughts

The Rising and Falling Window candlestick patterns are important tools for traders to identify potential trade opportunities.

By recognizing the stiff support and resistance regions these patterns create, traders can better assess the likelihood of successful trades during re-tests of these areas.

While these patterns provide valuable insights into market trends, it is essential to consider additional technical indicators and broader market conditions to make informed trading decisions.

Always be mindful of the context in which these patterns appear, and use them as part of a comprehensive trading strategy.

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Spencer Li

Weekly Market Wrap: Moody’s Downgraded Ten Regional Banks

Thumbnail banner weekly market wrap x3

Thumbnail banner weekly market wrap x3

For subscribers of our “Daily Trading Signals”, we now also include a “Weekly Market Report”, where we provide a weekly deep-dive on the market, including fundamentals, technicals, economics, and portfolio management:

Click here for last week’s market report (7 August 2023)
Click here to subscribe for the latest market report (14 August 2023)
Click here to see the archives of all our past market reports

Market Recap & Upcoming Week

Last week witnessed significant tremors in the banking sector as Moody’s made the call to downgrade ten regional banks, eliciting concerns about the banking industry’s robustness in light of escalating interest rates and previous bank defaults. This decision, causing a roughly 3% drop in major bank indices, stemmed from factors such as deteriorating assets and the Federal Reserve’s moves to combat inflation.

While these banks maintain their investment-grade status, whispers from Moody’s hint at re-evaluating ratings for other colossal institutions. This sparked apprehensions about depreciating bonds, heightened withdrawal rates, and wary investors. Conversely, some analysts argue that the sector remains on solid ground, considering the recent stock downturn as a transient repercussion.

For last week’s CPI data, July’s cooling inflation hinted at the Federal Reserve rethinking rate hikes.

For this coming week, major retailers like Walmart, Home Depot, and Target are set to release their reports, providing insights into the retail sector’s performance. Moreover, the Census Bureau will unveil July’s nationwide retail sales data on Tuesday, shedding light on the robustness of consumer spending. Meanwhile, all eyes will be on the Federal Reserve come Wednesday when they disclose the minutes from the recent FOMC meeting, potentially hinting at the future course of monetary policy.

The housing market is also in the spotlight with updates on building permits, July housing starts, and the NAHB’s Housing Market Index for August, which will offer a comprehensive picture of the real estate scenario. To top it off, brace yourself for significant global economic insights as we receive inflation and GDP data from powerhouses like the U.K., eurozone, and Japan. It’s a week packed with key indicators that could shape market sentiments, so stay informed and vigilant!

 

Daily Trading Signals (Highlights)

We cover 3 main markets with a total of 200+ counters, so we will never run out of trading opportunities:

By covering a broad range of markets, we can focus our attention (and capital) on whichever market currently gives the best returns.

Subscribe for real-time alerts and weekly reports:
👉🏻 https://synapsetrading.com/daily-trading-signals

 

Trading Signals AAPL 090823

Apple (AAPL) – After breaking the major support zone, it is likely to have a medium-term correction.

 

Trading Signals AUDUSD 090823

AUDUSD – After breaking the major support, price momentum is currently bearish.

We can ride the momentum downwards for now (short-term trade), but if prices make a sudden U-turn back into the range, be prepared to do range trading.

 

Trading Signals US100 090823

NASDAQ 100 (US100) – Prices are having a pullback to support, might be a good opportunity for a short-term buy trade, if there is a bullish trigger.

 

Trading Signals USDCNY 090823

USDCNY – Prices have rebounded off support, and may soon break new highs.

 

Trading Signals USDSGD 090823

USDSGD – Following up from the videos, after prices had a false break at the bottom of the range, the buyers stepped back in to push prices back to the top of the range.

 

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The Synapse Network

Falling Three Methods

The “Falling Three Methods” is a bearish, five-candle continuation pattern that signals an interruption of a current downtrend but not a reversal.

This pattern is characterized by two long candlesticks in the direction of the trend—down—at the beginning and end, with three shorter counter-trend candlesticks appearing in the middle.

This pattern contrasts with the Rising Three Methods, which signals a continuation of an uptrend.

Understanding the Falling Three Methods Pattern

The Falling Three Methods pattern occurs when a downtrend stalls as bears lack the impetus or conviction to keep pushing a security’s price lower.

This leads to a counter-move often resulting from profit-taking or an attempt by eager bulls anticipating a reversal.

The subsequent failure to make new highs or close above the opening price of the initial long-down candle emboldens bears to re-engage, leading to a resumption of the downtrend.

The Falling Three Methods pattern forms when the five candlesticks meet the following criteria:

The first candlestick in the pattern is a long bearish candlestick within a defined downtrend.

It is followed by three ascending small-bodied candlesticks that trade below the open or high price and above the close or low price of the first candlestick.

The fifth and final candlestick is a long bearish one that pierces the lows established by the first candlestick, indicating that the bears have regained control.

The series of small-bodied candlesticks in the middle of the Falling Three Methods pattern represents a period of consolidation before the downtrend resumes.

These small-bodied candlesticks are ideally bullish, especially the second one, although this is not a strict requirement.

This pattern is important because it shows traders that the bulls still don’t have enough conviction to reverse the trend.

Active traders often use it as a signal to initiate new short positions or add to their existing short positions.

The pattern’s bullish equivalent is the Rising Three Methods.

Trading the Falling Three Methods

The Falling Three Methods pattern provides traders with a pause in the downtrend to initiate a new short position or add to an existing one.

A trade can be taken on the close of the final candlestick in the pattern.

Conservative traders may want to wait for other indicators to confirm the pattern and enter on a close below the final candle.

Traders should ensure that the pattern isn’t sitting above a key support level, such as being located just above a major trend line, a round number, or horizontal price support.

It’s prudent for traders to check other time frames to confirm that the downtrend has ample room to continue.

Related Concepts

What Are the Rising Three Methods?

The Rising Three Methods is another candlestick pattern that indicates a trend is likely to continue rather than reverse or hesitate.

Like the Falling Three Methods, it is composed of a series of candles but has opposite implications.

What Is a Moving Average?

A moving average helps to identify the direction of a trend by monitoring information over a period of time and dividing the resulting number to pinpoint an average.

It is recalculated on an ongoing basis.

What Do Bearish and Bullish Mean?

A bear market results from falling stock prices, while a bull market occurs when prices are steadily and incrementally increasing.

Bull markets tend to occur in a healthy economy, while bear markets often result from a sustained period of economic decline.

Concluding Thoughts

The Falling Three Methods pattern offers traders several options for placing suitable stop-loss orders.

Aggressive traders may want to set a stop above the fifth candle in the pattern.

Traders who want to give their position more flexibility can place a stop above the third small countertrend candle or the high of the first long bearish candle in the pattern.

Before taking a trade, traders should check that there are no major support levels on the daily and weekly charts, especially if the pattern forms on the 60-minute chart.

While this pattern can provide valuable insights into market behavior, it should be used in conjunction with other technical indicators and risk management strategies to optimize trading outcomes.

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