One of the more obscure candlestick patterns is the side-by-side lines. This comes in four types: white bull, white bear, black bull and black bear. The similarity in appearance and meaning is confusing, so that the side-by-side lines formation is easily overlooked. However, it can provide important reversal signals and, along with other candlestick formations, can be a valuable weapon in every chartist’s skill set.
The four types are:
1. Bullish white. This consists of three white candlesticks. The first is followed by an upside gap. Next, two more white sessions appear. The third day may open and close either higher or lower than the second, but the important point is that all three sessions are upward-moving. This is a very strong bullish indicator, especially when you find it at the end of a downtrend.
2. Bullish black. Equally strong as the bullish white is the bullish black. The pattern is the same as the bullish white, with the upside gap after the first session the most important feature. The second and third sessions are black candles, but the indication is still to the upside.
3. Black bearish. If you reverse the color and appearance of the bullish white, you get a bearish black side-by-side lines formation. The first session is black, followed by a downside gap and then two more black sessions that do not retreat into the gap. This is a very strong bearish reversal signal, especially when you find it at the top of an uptrend.
4. Bearish white. Finally, you may also find a side-by-side with a first session black, a downside gap, and then two white candlesticks. As long as sessions two and three do not fill the downside gap and cover the same trading range without much variation, it is a bearish signal, even with the two white sessions.
The key to understanding any of the side-by-side variations is the gapping action. When the first session is followed by a gap in the same direction, and then two sessions that do not retreat into the gap, you have a strong reversal signal.
Any candlestick formation is valuable as long as it can be confirmed independently, by other candlesticks or by tests of support or resistance. The side-by-side formations are especially strong indicators, but because there are four types and their appearance is not always as obvious as many other signals, it is easily overlooked.
Michael C. Thomsett is an instructor with the New York Institute of Finance. He teaches five courses: “Swing Trading with Options,” “The Amazing World of Options,” “Synthetic Options Strategies”, “Options timing and dividend income strategies,” and “Using candlestick reversal and continuation patterns to improve timing.” He is also an investing and options author and has also written for FT Press’ Agile Investor series, which can be viewed on FTPress.com.