Blog: Market Analysis

Bullish Three Line Break

Definition

A bullish three line break structure is comprised of four Japanese candlesticks.

The first three candlesticks are bullish (green) and small.

The opening occurs at the closing price of the previous candlestick, and the closing occurs at the highest point of the candlestick.

The fourth candlestick is large, bearish (red), and encompasses the three bullish candlesticks.

It must close below the opening level of the first one.

Characteristic
A bullish three line break structure often forms after a significant rise characterized by several large green Japanese candlesticks.

Significance

Contrary to what one might think, this does not signal a reversal of the trend.

A bullish three line break is a continuation pattern; it indicates continuation of the bullish movement.

It is the sign of significant profit-taking that allows the increase to start again on a good basis.

Note
It is important that the three bullish candlesticks close at their high point.

Invalidation
If the closing of the last candlestick does not occur below the opening level of the first candlestick, or if the closing does not occur at the low point, then the bullish three line break structure is invalidated.

Bearish Three Line Break

Definition

A bearish three line break structure is comprised of four Japanese candlesticks.

The first three candlesticks are bearish (red) and small.

The opening occurs at the closing price of the previous candlestick, and the closing occurs at the lowest point of the candlestick.

The fourth candlestick is large, bullish (green), and encompasses the three bearish candlesticks.

It must close below the opening level of the first one.

Characteristic
A bearish three line break structure often forms after a significant drop characterized by several large red Japanese candlesticks.

Significance
Contrary to what one might think, this does not signal a reversal of the trend.

A bearish three line break is a continuation pattern; it indicates continuation of the downward movement.

This is a sign of significant profit-taking that allows the drop to start again on a good basis.

Note
It is important that the three bearish candlesticks close at their low point.

Invalidation
If the closing of the last candlestick does not occur below the closing level of the first candlestick, or if the closing does not occur at the high point, then the bearish three line break structure is invalidated.

Concluding Thoughts

The bullish and bearish three line break patterns are continuation patterns that, despite their appearance, do not signal a reversal.

Instead, they indicate a temporary pause for profit-taking before the original trend continues.

Understanding these patterns can help traders identify moments of consolidation within a trend, allowing them to make informed decisions about the continuation of the market direction.

It is crucial to validate these patterns with proper closing levels to avoid false signals.

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Mat Hold Pattern

What Is a Mat Hold Pattern?

A mat hold pattern is a candlestick formation that indicates the continuation of a prior move.

There can be either bearish or bullish mat hold patterns.

A bullish pattern starts with a large upward candle followed by a gap higher and three smaller candles that move lower.

These smaller candles must stay above the low of the first candle.

The fifth candle is a large candle that moves to the upside again.

This pattern occurs within an overall uptrend.

The bearish version is similar, except candles one and five are large down candles, and candles two through four are smaller and move to the upside.

These smaller candles must stay below the high of the first candle.

The pattern completes with a long candle to the downside, which is the fifth candle.

It must occur within a downtrend.

What the Mat Hold Pattern Tells You

When a bullish mat hold pattern occurs within an uptrend, it signals that the uptrend is likely resuming to the upside.

Traders may opt to buy near the close of the fifth candle (the large up candle) or enter a long trade on the following candle.

A stop loss is typically placed below the low of the fifth candle.

When a bearish mat hold pattern occurs within a downtrend, it indicates the downtrend is likely resuming, and prices will continue to fall.

Traders may opt to sell or short near the close of the fifth candle or on the following candle.

A stop loss on short positions is placed above the high of the fifth candle.

Both versions of the pattern are quite rare.

They demonstrate that the price is moving strongly in the trending direction (candle one), and there is only minor pressure in the opposite direction (candles two through four) before the price starts moving in the trending direction again (candle five).

What is the Difference Between a Mat Hold and a Rising Three Pattern?

A rising three pattern is very similar to a mat hold pattern, except there isn’t a gap following the first candle.

This pattern is also not very common.

Limitations of the Mat Hold Pattern

The mat hold pattern is difficult to find.

It occurs infrequently, and the price doesn’t always move as expected following the pattern.

There is no profit target for the mat hold pattern.

Even if the price moves as expected, the pattern doesn’t indicate how far the price could run.

This will require another method, such as trend analysis or technical indicators, to determine an exit, or possibly another candlestick pattern.

The mat hold pattern is typically best used in conjunction with other forms of analysis, as it may be unreliable if traded solely on its own.

Concluding Thoughts

The mat hold pattern can be a powerful tool for traders looking to identify continuation patterns within a trend.

However, due to its rarity and the potential for deviations, it is essential to use this pattern in conjunction with other technical analysis methods.

By doing so, traders can improve their chances of success and better navigate the complexities of market movements.

Downside Tasuki Gap

What Is a Downside Tasuki Gap?

Definition

A Downside Tasuki Gap is a candlestick formation commonly used to signal the continuation of the current downtrend.

The pattern forms when a series of candlesticks exhibit the following characteristics:

1. The first candle is red or black (down) within an existing downtrend.

2. The second candle gaps below the close of the previous bar and is also red (down).

3. The last bar is a white or green (up) candlestick that closes within the gap of the first two bars. It is important to note that the white candle does not need to fully close the gap.

What Does the Downside Tasuki Gap Tell You?

The Downside Tasuki Gap, also known as the Bearish Tasuki Gap, is a three-candle continuation pattern.

To identify this pattern, traders should look for a clear downtrend and a large red/down candle.

Following this, the price must gap down and form another large red/black candle.

Finally, a white/green candle must follow the red/black candle, with the green/white candle opening inside the red candle’s real body and closing above it.

This candle should not close the gap between the first two candles.

The Downside Tasuki Gap pattern illustrates the strength of the downtrend, with bears firmly in control and pushing the price lower.

This downward momentum is reinforced by the gap lower and the formation of a new red candle.

However, a pause follows as the bulls attempt to push the price up.

If the price is unable to close the gap, and the price starts to drop again, the bulls are likely to exit, allowing the existing downtrend to resume.

Some traders opt to enter short near the close of the white candle, anticipating the continuation of the downtrend.

Others may prefer to wait for the price to drop below the low or open of the white candle, providing confirmation that the price is dropping again and the downtrend is resuming.

Limitations of Using the Downside Tasuki Gap

The Downside Tasuki Gap pattern is just three candles in a larger context of price action.

By focusing solely on this pattern, a trader might lose sight of the broader trend.

For instance, while the short-term trend may be down when this pattern occurs, the longer-term trend might be up, leading to a potential rise in price shortly after the pattern forms.

This pattern is relatively uncommon, presenting limited trading opportunities.

Moreover, context is crucial when using this pattern.

The stronger the downtrend and selling pressure, the more likely the price will continue lower.

In choppy or weak trends, the odds of success for this pattern diminish.

There is no indication of how far the price may fall, or if it will fall at all, after the pattern, requiring traders to use additional forms of analysis.

Before trading any candlestick pattern, it’s essential to look for historical examples of how the pattern has performed, including both successful and unsuccessful outcomes.

Concluding Thoughts

The Downside Tasuki Gap is a useful pattern in technical analysis that signals the continuation of a downtrend.

While it can provide valuable insights into potential market movements, traders should always consider the broader market context and use additional analysis to confirm their trades.

This pattern is best used as part of a comprehensive trading strategy that includes other technical indicators and market analysis.

Upside Tasuki Gap

What Is an Upside Tasuki Gap?

Definition

An Upside Tasuki Gap is a three-bar candlestick formation commonly used to signal the continuation of the current uptrend.

The pattern consists of the following:

The first bar is a large white/green candlestick within a defined uptrend.

The second bar is another white/green candlestick that opens with a price gap above the close of the previous bar.

The third bar is a black/red candlestick that partially closes the gap between the first two bars.

Understanding the Upside Tasuki Gap

The Upside Tasuki Gap pattern demonstrates the strength of an uptrend through the gap opening of the pattern’s second candle and its escalating price.

The third candle indicates a pause in the trend as the bears attempt to move the price lower but fail to close the gap between the first and second candles.

The inability of the bears to close this gap suggests that the uptrend is likely to continue.

Traders may also refer to this pattern as a Bullish Tasuki Gap or the Upward Gap Tasuki.

The opposite pattern, which occurs in a bearish market, is known as a Downward Tasuki Gap.

Both patterns are believed to have originated from Japanese technical analysis.

Significance in Trading

The Upside Tasuki Gap is one of many gap patterns that can form during a bullish trend.

Traders often use supporting uptrend gap patterns in conjunction with the Upside Tasuki Gap to confirm a bullish trading strategy.

Gaps represent significant price changes, typically occurring from one trading day to the next, and are crucial for identifying potential trend continuations or reversals.

It is common to see the price of an asset close a gap previously created, which can sometimes result in a slight pullback.

The black/red candlestick forming the Upside Tasuki Gap acts as a minor consolidation period before the bulls continue pushing the price higher.

Upside Tasuki Gap Within an Uptrend

Upside Tasuki Gaps can occur at any time during a bullish trend.

Bullish patterns typically follow a cycle beginning with a breakaway gap that confirms a reversal, followed by several runaway gaps, and concluding with an exhaustion gap.

As the price of a security trends higher, it often forms an ascending channel, which traders construct by drawing two upward-sloping lines at the peak and trough levels of price action.

An Upside Tasuki Gap can occur within this ascending channel and may include one or several of the aforementioned gaps.

Concluding Thoughts

The Upside Tasuki Gap is a significant candlestick pattern for traders looking to identify the continuation of an uptrend.

While it is a strong signal on its own, it is most effective when used in conjunction with other gap patterns and technical analysis tools.

Understanding and recognizing this pattern can provide traders with valuable insights into market trends.

However, it is important to consider the overall market context and use additional indicators to ensure a well-rounded and effective trading strategy.

Thrusting Line Pattern

What Is a Thrusting Line?

Definition

The term thrusting line refers to a bearish or two-candle pattern in technical analysis. Along with being the continuation of a bearish pattern, a thrusting line may also alert traders to the reversal of a bullish pattern.

The pattern is identifiable by the second candlestick, which closes near or at the mid-point of the candlestick body just before it on a chart. This indicates that prices will continue to drop, leading to the possibility of short selling as buyers exit the market.

Understanding Thrusting Lines

Stock traders, especially technical analysts, constantly seek patterns that can provide insights into the direction a stock might take next. The thrusting line is one such pattern, useful in determining whether a stock’s price will continue to rise or fall.

The thrusting line is part of a two-candlestick pattern. The first candle is a large down candle with a longer wick at the bottom, while the second candle is an up candle with a longer wick at the top. The position of the second candle’s open and close relative to the first candle indicates the strength of buying pressure and whether that pressure is likely to continue.

The pattern can provide traders with a signal to enter short trades if a downward continuation thrusting line develops, betting on further decline.

Types of Thrusting Line Patterns

Thrusting lines can be categorized into three types: continuation, neutral, and reversal. Each type provides different insights into market behavior:

Continuation

If the second candle opens well below the close of the first candle and closes near the close of the first candle, it indicates a weak bullish move. The downward trend is likely to continue, and selling is expected to resume over the following sessions or candles.

Neutral

If the second candle opens below the close of the first but closes near or slightly above the close of the second, the pattern is neutral. The price could move higher or lower in the next session, indicating a tug-of-war between bulls and bears.

Reversal

If the price of the second candle opens near the close of the first candle and closes near the mid-point of the first candle, it signals an upside reversal. The bulls have managed to erase much of the prior loss, suggesting a potential gain in price as sellers pause and more buyers enter the market.

Limitations of Thrusting Lines

Not all thrusting lines develop as expected. Therefore, it’s important to use thrusting patterns alongside other forms of analysis, such as trend analysis, other price action signals, and technical indicators.

Thrusting lines offer only a short-term outlook for price direction. They don’t provide a profit target, so traders need to rely on other methods to determine when to exit trades.

What Are the Three Types of Thrusting Line Candlestick Patterns?

The three types of thrusting line candlestick patterns are continuation, neutral, and reversal.

In a continuation pattern, downward pressure is expected to persist, and selling is likely to resume.

In a neutral pattern, prices could go higher or lower.

In a reversal pattern, bulls have managed to turn things around, leading to gains in asset prices.

What Is the Difference Between a Thrusting Line and a Piercing Pattern?

Thrusting lines and piercing patterns are similar but have key differences.

In a thrusting line, the second candle closes at or below the mid-point of the first candle.

In a piercing pattern, the second candle is more bullish, closing above the mid-point but below the open of the first down candle.

Concluding Thoughts

If you’re incorporating technical analysis into your investment strategy, understanding patterns like the thrusting line can help you gauge market sentiment and potential price movements.

However, remember that thrusting lines are short-term indicators and should be used in conjunction with other analysis tools to improve trading decisions.

Before making trades based on this pattern, be sure to do your research, plan carefully, and practice with simulated trades to increase your chances of success.