Blog: Market Analysis

What is the Separating Lines Pattern?

Definition

The Separating Lines candlestick pattern is a continuation pattern that forms when a bullish candle pattern is followed by a bearish candle pattern that opens at the start of the previous bar in a downtrend, or when a bullish bar follows a bearish candle that opens below the open of the previous candle in an uptrend.

This is a two-candle continuation pattern that can either be bullish or bearish, depending on the previous trend direction.

Bullish Separating Lines

A bullish separating lines pattern is a two-candle bullish continuation candlestick pattern that appears in the middle of a bullish trend.

It indicates that the current bullish trend is about to continue after a temporary pullback.

The most common interpretation is that a bullish separating line shows that the current bullish trend will continue after a small pullback.

The pattern is made up of two candles, with the first being bearish and the second bullish.

Characteristics

– The first candle is bearish.
– The second candle gaps above the body of the previous candle or opens right at its open.
– The second candle closes higher than it opened.

Bearish Separating Lines

The bearish separating line is a bearish continuation pattern.

The first line is a white candle that forms as a long line in a downtrend.

The second line is a black candle that forms as a long line.

Both bars will open at the same price, and then the prices start separating.

Characteristics

– The first candle is positive and forms in a negative trend.
– The second candle is negative and opens below the open of the previous candle.

How to Identify the Separating Lines Pattern?

Criteria

– A day occurs when there’s an uptrend, and it is the opposite color of the current trend.
– The second day begins at the open of the previous day.
– The second day should open on its low for the day and then go higher.

Pattern Psychology

During the uptrend, a black or red body forms.

This leads to some concern for the bulls, but the next day the prices gap back up to the open of the previous day.

When this happens, the bulls regain confidence, and the trend continues.

Candlestick signals detect where money is flowing in and out of stocks.

Understanding the trader psychology behind candlestick signals offers a great advantage, allowing traders to participate in investments with a high probability of success.

What Does the Separating Lines Tell Traders?

Bullish Separating Lines

After an established uptrend, where the bulls dominate the market, the bears take control temporarily.

The price goes down during the bears’ control, but their time in power is short.

On the second day, the price rises sharply, opening at the same level the previous day opened.

The uptrend is expected to continue as the bulls regain control.

The pattern shows the strength of the trend, indicating that even after a setback, the bulls will come back with full force.

Bearish Separating Lines

In a downtrend, the bears are in control until the bulls temporarily take over.

However, the bears quickly regain control on the second day, and the price drops again.

The downtrend is expected to continue, showing that the bears remain strong and the trend is unlikely to reverse.

How to Trade When You See the Separating Lines Pattern?

Considerations

While candlestick patterns are valuable, they are not enough on their own to make a trade.

It’s crucial to incorporate other types of technical analysis to support predictions.

Some key factors to consider in your trading plan include:

– Volatility: Some patterns work better with high or low volatility.
– Momentum: The momentum of a market impacts the performance of many strategies.
– Seasonality: Analyze the time of day, part of the month, or day of the week to identify bullish or bearish tendencies.

Concluding Thoughts

The Separating Lines pattern, whether bullish or bearish, provides valuable insights into the continuation of current market trends.

While it offers strong signals, it is important to confirm this pattern with other technical indicators and to ensure it fits within the broader market context.

A well-rounded trading strategy should consider factors such as volatility, momentum, and seasonality to improve the accuracy and success of trades based on the Separating Lines pattern.

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Bullish Atekubi & Bearish Atekubi

Below the Neckline – Bullish Atekubi

Definition

A bullish atekubi (line below the neckline) is a structure comprised of two Japanese candlesticks.

The first candlestick is a large bullish candlestick (green), followed by a small bearish candlestick (red) with a closing just above the closing level of the previous candlestick.

The second candlestick must be significantly smaller than the first.

Illustration

Characteristic

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

Significance

A line under the neckline (bullish atekubi) is a continuation pattern, indicating a continuation of the bullish movement.

Note

For the structure to be validated, the next candlestick must be bullish and close above the opening level of the small bearish candlestick (red).

Invalidation

If the lowest point of the small bearish candlestick surpasses the next candlestick, the structure can be considered invalidated.

Below the Neckline – Bearish Atekubi

Definition

A bearish atekubi (line below the neck) is a structure comprised of two Japanese candlesticks.

The first candlestick is a large bearish candlestick (red), followed by a small bullish candlestick (green) with a closing just below the closing level of the previous candlestick.

The second candlestick must be significantly smaller than the first.

Illustration

Characteristic

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

Significance

A line below the neckline (bearish atekubi) is a continuation pattern, indicating a continuation of the bearish movement.

Note

For the structure to be validated, the next candlestick must be bearish and close below the opening level of the small bullish candlestick (green).

Invalidation

If the highest point on the small bullish candlestick surpasses the next candlestick, the structure can be considered invalidated.

Concluding Thoughts

The bullish and bearish atekubi patterns are valuable continuation signals within a trending market.

They provide insight into the potential for ongoing momentum in the direction of the current trend, offering traders opportunities to position themselves accordingly.

However, as with all candlestick patterns, confirmation from subsequent candlesticks and additional technical indicators is crucial to ensure the reliability of the signal and to avoid false setups.

Bullish Irikubi & Bearish Irikubi Pattern

In Neck Pattern – Bullish Irikubi

Definition

A bullish Irikubi (line in the neck) structure is comprised of two Japanese candlesticks.

The first is a large bullish candlestick (green) followed by a small bearish candlestick (red) with a closing just below the closing level of the previous candlestick.

The second candlestick must be significantly smaller than the first.

Illustration

Characteristic

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

Significance

The in neck pattern (bullish Irikubi) is a continuation pattern, indicating a continuation of the bullish movement.

The small red candlestick signifies a hedge on long positions.

Note

For the structure to be validated, the next candlestick must be bullish and close above the opening price of the small bearish candlestick (red).

Invalidation

If the lowest point of the small bearish candlestick surpasses the next candlestick, the structure can be considered invalidated.

In Neck Pattern – Bearish Irikubi

Definition

A bearish Irikubi (line in the neck) structure is comprised of two Japanese candlesticks.

The first is a large bearish candlestick (red) followed by a small bullish candlestick (green) with a closing just above the closing level of the previous candlestick.

The second candlestick must be significantly smaller than the first.

Illustration

Characteristic

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

Significance

The in neck pattern (bearish Irikubi) is a continuation pattern, indicating a continuation of the bearish movement.

The small green candlestick signifies a hedge on short positions.

Note

For the structure to be validated, the next candlestick must be bearish and close below the opening price of the small bullish candlestick (green).

Invalidation

If the highest point on the small bullish candlestick surpasses the next candlestick, the structure can be considered invalidated.

Concluding Thoughts

The bullish and bearish Irikubi patterns, as in neck patterns, serve as important continuation signals within the context of ongoing trends.

While these patterns provide valuable insights into potential trend continuations, traders must always validate the structure with subsequent candlestick behavior to avoid false signals.

As with other candlestick patterns, combining these with additional technical indicators and analysis is recommended to strengthen trading strategies and enhance the accuracy of predictions.

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

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

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.