The Three-Line Strike, also known as the fooling three soldiers, is a four-line pattern that occurs during a defined trend. This pattern represents a resting period, but unlike most resting periods, the three-line strike occurs all in one day and it ends up looking like an extended three white soldiers pattern. The criteria required for the three-line strike pattern is pretty simple and is explained below.

Criteria for the Three-Line Strike

• The three white soldiers pattern appears as three white (or green) candles that are continuing the uptrend
• The fourth day opens higher, however it then pulls back to close below the open of the first white (or green) candle

Pattern Psychology
As explained above, the three white soldiers that preclude the fourth day’s black (or red) candle indicate the trend is continuing. The fourth day opens in a manner that resembles the previous days; however, profit-taking sets in so that the fourth candle continues until the close is below the open of the first white (or green) candle. The black (or red) candle body completely negates the rise of the past three days. As a result, the short-term pullback sentiment is out of the way and the uptrend continues on from this point.

One of the biggest misconceptions of investors is that prices move based upon fundamental reasons when in fact prices move based upon the “perception” of fundamental reasons. The Japanese Rice traders discovered this many centuries ago. Why do prices go down when good news is announced? The answer is that the anticipation of that good news was already built into the stock price.

Japanese Candlestick trading signals consist of approximately 40 reversal and continuation patterns. All candlestick patterns have credible probabilities of indicating correct future direction of a price move.

As you learn how to utilize the candlestick signals correctly you will have the knowledge to improve your trading techniques for those trading entities you want to trade. You do not have to depend on canned programs that sometimes work and sometimes don’t work and you do not have to buy or sell stock recommendations blindly based on a research analyst’s recommendation.

Throughout his investment career, Stephen Bigalow has directed his investment acumen towards developing improved methods for extracting profits from the investment markets. His research, encompassing all fundamental and technical methods, resulted in verifying that Candlestick analysis was superior to any other method.

The Mat Hold Candlestick Pattern is similar to the “Rising Three Methods” pattern. The Mat Hold Candlestick Pattern has the look of an “Upside Gap Two Crows” pattern except that the second black (or red) body (third day) dips into the body of the large white (or green) candle. It is followed by another small black (or red) body that dips a bit further into the white (or green) candle body. The final day gaps to the upside and it continues its up-ward movement to close higher than the trading range of any of the previous days.

The implication of the Mat Hold Candlestick Pattern is that the trend has not stalled. This is a good point to add to positions. The Mat Hold Candlestick pattern is a stronger continuation pattern than the “Rising Three Methods.” During the days of “rest,” unlike the “Rising Three Methods,” the price stays close to the top of the white (or green) candle’s upper range.

Criteria

• An up-trend is in progress and a long white (or green) candle forms
• A gap up day, that closes lower than its open, creates a small black (or red) candle
• The following two days form small candles somewhat like the Rising Three Method.
• The final day gaps up and closes above the trading ranges of the previous four days.

Pattern Psychology

The Mat Hold Candlestick Pattern does not pull back as much as the Rising Three Method and it is easier to identify. The pull-back days are less concerning and the relatively flat rest period does not create the same amount of concern that the Rising Three Method creates. There are three days in which the bears are not able to knock the price down to any great degree and as a result the bulls step back in with confidence.

Japanese Candlestick trading signals consist of approximately 40 reversal and continuation patterns. All candlestick patterns have credible probabilities of indicating correct future direction of a price move.

The investment psychology incorporated into candlestick signals makes it easier to understand what is going on in an investor’s mind. The signals were created through hundreds of years of visual analysis and interpretation by successful Japanese Rice traders.

Please continue to learn how to identify each different candlestick trading pattern as well as what that pattern indicates is occurring in the markets.

“Lki chigai sen” is defined as “lines that move in opposite directions.” The separating lines candlestick pattern occurs when there is an uptrend in the market and when there is pullback as well. The separating lines candlestick pattern is exhibited by a long black (or red) candle; however, the following day opens back up to the same level as it opened the previous day. This pattern has the same open and is the opposite color. This is the exact reverse of the Meeting Lines pattern. In other Japanese circles, this is also known as “Furiwake” or in other words “Dividing Lines.”

Criteria

• An uptrend is in progress when a day then occurs that is the opposite color of the current trend.
• The second day opens at the open of the previous day.
• The second day should open on its low for the day and then proceed to go higher.

Pattern Psychology
During the uptrend a black (or red) body occurs. This causes some concern to the bulls, but the following day the prices gap back up to the previous day’s open. This gives the bulls confidence that the trend still has movement so they jump back in and move the prices higher. Confidence is renewed, and the trend continues. The bearish Separating Line candlestick pattern works the exact same way in the opposite direction.

Candlestick signals identify where money is flowing in and out of stocks/sectors. Being able to identify and understand the investor psychology that creates the candlestick signals produces a huge advantage. It allows an investor to participate in stock investments that have an extremely high probability of moving in the right direction.

When you learn how to utilize the candlestick signals correctly you now have the knowledge to improve your trading techniques for those trading entities you want to trade. You do not have to depend on canned programs that sometimes work and sometimes don’t work and you do not have to buy or sell stock recommendations blindly based on a research analyst’s recommendation.

Continue to learn about more candlestick patterns to see how it can greatly improve your profits! Primary candlestick patterns should be understood first (such as the doji and hanging man patterns). Once you have a basic understanding of the primary signals, move onto the secondary candlestick signals and then eventually the continuation pattern such as this upside tasuki gap pattern.

The side-by-side white lines are found during an up-trend and it is important to note that this pattern is a very strong continuation pattern. Two white (or green) candles form side-by-side after a gap up from the previous white (or green) candle. Narabi in Japanese means “in a row” which also means “whites in a row.” Side-by-Side Lines, whether black or white, indicate a pause or stalemate when they are observed alone and they occur after a gap in the trend’s direction.

SIDE-BY-SIDE WHITE LINES (BULLISH AND BEARISH)

Criteria for the Side-by-Side White Lines

• An uptrend is in progress and a gap occurs between two candles of the same color.
• The color of the first two candles is the same as the prevailing trend.
• On the third day, a candle opens at the same open price or near the open price of the previous day.
• The third day closes near the close of the previous day.

Pattern Psychology Behind the Side-by-Side White Lines
During an up-trend, a white (or green) candle gaps up from the white (or green) candle of the previous day. The following day opens at the open of the gap up; however, it is persistent in maintaining the up-ward move again. This indicates that the bears are trying to turn the trend around, but instead they lose to the bulls almost immediately. This side-by-side white lines pattern is somewhat rare, however its meaning is clear. It is also important to note that the bearish side-by-side white lines pattern is even rarer than its bullish counterpart. It indicates that a short covering is occurring and when the sellers step in again, even more short covering occurs. Finally when the short covering is over, the downtrend continues.

The psychology built into a major candlestick signal is simple common sense investment philosophy. When you learn how to utilize the candlestick patterns correctly you now have the knowledge to improve your trading techniques for those trading entities you want to trade. You do not have to depend on canned programs that sometimes work and sometimes don’t work and you do not have to buy or sell stock recommendations blindly based on a research analyst’s recommendation.

Throughout his investment career, Stephen Bigalow has directed his investment acumen towards developing improved methods for extracting profits from the investment markets. His research, encompassing all fundamental and technical methods, resulted in verifying that Candlestick analysis was superior to any other method.

The rising three methods is an easy pattern to see during an uptrend. A long white (or green) candle forms and it is followed by a series of small candles. Each of the smaller candles is consecutively lower than the previous. The optimal number of pull-back days should be three however; two, four or even five pull-back days can be observed. The most important factor is that these candles do not close below the open of the big white (or green) candle. Also, the shadows on these candles should not go below the white (or green) candle. The candle of the final day of the formation should open up into the body of the last pull-back day and close higher than the first big white (or green) candle.

RISING THREE METHODS

Criteria for the Rising Three Methods

• An up-trend is in progress and a long white (or green) candle forms
• A group of small-bodied candles follow (preferably black or red bodies)
• The close of any of the pull-back days should not close lower than the open of the big white (or green) candle.
• The final day opens up into the body of the last pull-back day and proceeds to close above the close of the first big white (or green) candle day.

Pattern Psychology for Rising Three Methods
The rising three methods pattern suggests a rest in the trend or, in Japanese terms, a rest from battle. The concept is that the first black (or red) candle day brings some doubt into the bull camp. The following day does the same, and by the third day, the bulls are convinced that the bears do not have the strength to push prices down anymore. As a result, the bulls regain courage and start to step in. The rising three methods pattern resembles the western bull flag or pennant formation, however, the concept was originally developed in the 1700s. In modern terms, this pattern suggests that the market is just ‘taking a breather.”

Continue to learn about about the primary candlestick patterns and once you understand those then you can move onto the secondar, reversal and continuations patterns.

The Falling Three Methods is a bearish continuation pattern and it begins with a long black (or red) candle followed by a series of up-ward reaction candles. These candles all form within the range of the original candle, but they have smaller bodies. Normally, the smaller candles are white (or green), since the large trend candle is black (or red). The fifth and final candle is the same color as the original trend candle but it closes at a new low and opens lower than the close of the previous day. The only difference between the fifth and first candle is that the fifth candle will be higher or lower, depending on the trend of the original candle.

Recognizing continuation patterns is important whether you are in a long position or a short one. Besides adding to positions, continuation patterns also confirm your other indicators, even if you are trading on the short side.

FALLING THREE METHODS

Description
The Falling Three Methods is basically the opposite of the Rising Three Methods (which is another pattern discussed in next week’s blog). The market is in a downtrend and a long black (or red) candle forms. It is then followed by a series of small candles, each consecutively higher than the previous. The optimal number of up-trending days should be three. It is important to note that two, four, or even five counter trend days can be observed. Additionally it is important to note are that these candles do not close above the open of the big black (or red) candles and that the shadows do not go above the black (or red) candle’s open. The final day of the formation should open down in the body of the last uptrend day and close lower than the first big black (or red) candle’s close.

Criteria for the Falling Three Methods

• A downtrend is in progress and a long black (or red) candle forms.
• A group of small bodied candles follow, preferably white (or green) bodied.
• The close of any of the up-trend days not does close higher than the open of the big black (or red) candle.
• The final day opens up into the body of the last uptrend day and proceeds to close below the close of the first big black (or red) candle day.

Pattern Psychology of the Falling Three Methods
The Falling Three Methods is considered to be a rest in the downtrend. Just like the Rising Three Methods, the appearance of the white (or green) candle unnerves the bears. The bulls are unable to take the prices higher and the bears regain their confidence and resume selling. The concept is that the first black (or red) candle day brings some doubt into the bull camp. The following day does the same and by the third day, the bears are now convinced that the bulls do not have the strength to push prices up anymore. The bulls get their courage back and start to step in.

Continue to learn about additional candlestick patterns as well as reversal patterns and secondary patterns to learn how you can improve your profits.

Description
The Thrusting Line pattern is almost an On Neck Line or an In Neck Line pattern and it also resembles the Meeting Lines pattern. The Thrusting Line pattern actually has the same description as the On Neck Line pattern except that it closes near and slightly below the midpoint of the previous day’s black (or red) body.

Thrusting Line Pattern Image

Criteria for Thrusting Line Pattern

• A long black (or red) candle forms in a downtrend.
• The following day gaps down from the previous day’s close; however, the body is typically bigger than those found in the On Neck Line and In Neck Line patterns.
• The second day closes just slightly below the midpoint of the previous day’s candle.

Pattern Pasychology for the Thrusting Line Pattern
The same scenario that exists for the On Neck Line pattern also exists for the Thrusting Line pattern. After the market is moving in a downward direction, a long black (or red) candle enhances this downtrend. The following day opens lower, with a small gap down, but the trend halts with a move back up to the previous day’s low. The buyers in this upward movement should be uncomfortable that there is no additional strength in the upward movement. The sellers step back in the following day and continue the downtrend. This downtrend is slightly stronger than the On Neck line and In Neck line patters, but not quite as strong as the Piercing pattern.

The psychology built into a major candlestick signal is simple common sense investment philosophy. When you learn how to utilize the candlestick patterns correctly you now have the knowledge to improve your trading techniques for those trading entities you want to trade. You do not have to depend on canned programs that sometimes work and sometimes don’t work and you do not have to buy or sell stock recommendations blindly based on a research analyst’s recommendation.

Candlestick patterns are created by common sense investment practices. Please continue to learn about the primary, secondary, reversal and continuation patterns to enhance your profits.

This week’s article introduces the “In Neck Line” which is a bearish continuation pattern.

IN NECK LINE

Description

The in neck line pattern is almost a meeting lines pattern. It has the same description as the on neck line pattern except that it closes at or slightly above the previous day’s close. Confirmation is suggested for the in neck line pattern, and when it appears, it indicates some short covering but not a change in trend direction.

Criteria for In Neck Line Pattern

1. A long black (or red) candle forms in a downtrend
2. The following day gaps down from the previous day’s close, but the body is usually smaller than one seen in the meeting lines pattern.
3. The second day closes at the close or just slightly above the close of the previous day.

Pattern Psychology
This is the same scenario as the on neck line pattern. After the market is moving in a downward direction, a long black (or red) candle enhances this downtrend. The following day opens lower with a small gap down, but the trend is halted by a move back up to the previous day’s low. The buyers in this upward movement tend to be uncomfortable since there was not more strength in the upward movement. The sellers typically step back the following day to continue the downtrend.

One of the biggest misconceptions of investors is that prices move based upon fundamental reasons when in fact prices move based upon the “perception” of fundamental reasons. The Japanese Rice traders discovered this many centuries ago. Why do prices go down when good news is announced? The answer is that the anticipation of that good news was already built into the stock price.

The investment psychology incorporated into candlestick signals makes it easier to understand what is going on in an investor’s mind. The signals were created through hundreds of years of visual analysis and interpretation by successful Japanese Rice traders.

Throughout his investment career, Stephen Bigalow has directed his investment acumen towards developing improved methods for extracting profits from the investment markets. His research, encompassing all fundamental and technical methods, resulted in verifying that Candlestick analysis was superior to any other method.

Japanese Candlestick trading signals consist of approximately 40 reversal and continuation patterns. All candlestick patterns have credible probabilities of indicating correct future direction of a price move.

Please continue to learn how to identify each different candlestick trading pattern as well as what that pattern indicates is occurring in the markets.

This article introduces the “On Neck Line” which is a bearish continuation pattern.

ON NECK LINE

Description
The On Neck Line pattern is almost a meeting lines pattern, but the critical term is “almost.” The On Neck Line pattern does not reach the previous day’s close but instead it only reaches the previous day’s low. It is important to understand the distinction because both candlestick patterns have very different meanings and can predict different outcomes. While the On Neck Line pattern is a rare pattern, it is still necessary to understand.

Criteria for the On Neck Line Pattern

• A long black (or red) candle forms in a downtrend.
• The following day gaps down from the previous day’s close. It is important to note however that the body is typically smaller than the body seen in the meeting lines pattern.
• The second day closes at the low of the previous day.

Pattern Psychology for the On Neck Line Candlestick Pattern
After the market continues to move in a downward direction a long black (or red) candle enhances this downtrend. The following day opens lower, with a small gap down, but the trend is halted by a move back up to the previous day’s low. The buyers in this upward move are typically uncomfortable considering there was no additional strength in the upward movement. Sellers will typically take a step back the following day to continue the downtrend.

Candlestick signals identify where money is flowing in and out of stocks/sectors. Being able to identify and understand the investor psychology that creates the candlestick signals produces a huge advantage. It allows an investor to participate in stock investments that have an extremely high probability of moving in the right direction.

The average investor does not have to be dependent on the investment professional when utilizing candlestick patterns. Professional recommendations are not always in your best interest at the forefront. Whether totally unfamiliar with investment concepts or very sophisticated in investment experience, the Japanese Candlestick trading formations are easily utilized. The signals and patterns are easy to see and their interpretations are reliable.

Please continue to learn how to identify each different candlestick trading pattern as well as what that pattern indicates is occurring in the markets.

Description
The downside tasuki gap is another continuation pattern and it is found during a declining trend. When identifying a downside tasuki gap pattern you will see a black or red candle form after it gaps down from the previous black or red candle. The following day opens higher and closes higher than the previous day’s open. If the gap is not filled then the bears are still in control and many investors opt to short. If the gap is filled then that means that the bearish momentum has come to an end. When utilizing candlestick patterns it is important to note that you are mostly likely to come across the upside tasuki pattern rather than the downside tasuki pattern.

Criteria for Identifying the Downside Tasuki Pattern:

• A downtrend is in progress and a gap occurs between two candles of the same color.
• The color of the first two candles is the same as the prevailing trend.
• On the third day an opposite color candlestick opens within the previous candle, and it closes below the previous open.
• The third day close does not fill the gap between the two candles.
• The last two candles are opposite colors and are typically about the same size.

Pattern Psychology
When identifying the downside tasuki pattern, just the opposite is true of the upward tasuki gap. The Japanese put significance into gaps and when one appears in the middle of the trend and it is not able to fill itself on strength the following day, the momentum is still in the downtrend. The bounce-up day is typically interpreted as a short-covering day. After the short covering disappears then the selling continues.

Recognizing and understanding the psychology that forms the major candlestick patterns, the reversal patterns and the continuation patterns, will provide completely new insights for investors to understand optimal times to buy and sell. Japanese rice traders realized that prices do not move based on fundamentals but instead that they move based on the investor perception of those fundamentals.

When you learn how to utilize the candlestick signals correctly you now have the knowledge to improve your trading techniques for those trading entities you want to trade. You do not have to depend on canned programs that sometimes work and sometimes don’t work and you do not have to buy or sell stock recommendations blindly based on a research analyst’s recommendation.