Candlestick trading is a method of tracking market trends. It originally originated in Japan, and is now popular in most countries on the globe. The meeting line patterns between subsequent candlesticks can tell the average trader a lot about current market trends.
The two popular candlestick patterns that are used to identify reversals by technical traders are the bullish meeting line pattern and the bearish meeting line pattern. Being able to identify these in candlestick trading graphs will allow you to get a sense of a shift, or a reversal, in the trend of a stock.
To find out more about bullish/bearish meeting line patterns in candlestick training, including how to identify and interpret these meeting lines, keep reading.
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Table of Contents
Types of Meeting Line Candlestick Patterns
The first variant of the candlestick pattern is known as the bullish meeting line pattern. To understand this term, you must first understand what bullish means when it comes to market trends.
A stock being bullish means that it is on an uptrend, showing a pattern of stock prices going up. Now, a bullish meeting line pattern is typically the beginning of an upward trend, so in that sense, it is a reversal pattern, showing up to create change in a stock trend.
The second variant is known as the bearish meeting line pattern. A stock being bearish means the exact opposite of its counterpart, meaning that it has shown a downward trend, showing a pattern of stock prices going down.
Also, just like its counterpart, the bearish meeting line pattern will show up at the tail end of an upward trend, showing the start of a drop in stock prices.
These patterns are two sides of the same coin in that they both serve the same function: they inform the reader of a reversal in current market trends. This isn’t a foolproof method of reading the market, as the status of the market depends on a limitless number of variables, but being able to identify these simple patterns will help you to finger the pulse of the market just a little bit more.
How to Identify Meeting Line Patterns in Candlestick Trading?
When looking at a graph full of candlesticks for a particular potential stock option, you may find yourself searching for trends. These two patterns we have discussed both have things you should watch out for in order to identify the reversal of a stock’s trend. First of all, both of these patterns are made of two candlesticks next to each other.
For a bullish pattern:
- The first candlestick will typically be a longer negative one, with the second candlestick being longer and positive.
- The set of candlesticks will also be located on the chart after a series of days displaying a downward trend in the stock.
- Finally, the closing price on each of the candlesticks will be the same, or at least very similar.
The opposite will generally be true with the bearish pattern as well:
- The first candlestick will typically be a longer positive one, with the second candlestick being longer and negative.
- The set of candlesticks will also be located on the chart after a series of days displaying an upward trend in the stock.
- Finally, the closing price on each of the candlesticks will be the same, or at least very similar.
How to Interpret These Meeting Line Patterns?
With the ability to accurately identify bullish and bearish meeting line patterns in candlestick trading, you will be able to leverage this knowledge to identify how those participating in the market feel during these cycles of reversal, upswing, and downfall.
In the case of a bullish meeting line pattern, the stock trend is reversing from that of a downward trend to that of an upward trend. Stock is going from a place where it is cheap and becoming more expensive. In a time like this, people are going to react in any number of ways.
They may decide that the stock they’ve been holding onto is only momentarily rising, and cut their losses. Or, more experienced eyes may begin buying up stock while it is still low, anticipating the continued upward trend. You can tap into this kind of psychological factor when you’ve identified where the trend starts.
In the case of a bearish meeting line pattern, the stock is inversely moving from an upward trend towards a downward trend. This is consequently going to affect the psyche of the market in a different way than a bullish meeting line pattern.
In a time like this, those who have been holding the stock in hopes it will just continue to rise may get cold feet and sell all at once. In a case like this, if enough people make this move, the entire value of the stock will transform exponentially.
Knowing how to identify the patterns discussed isn’t useful in knowing when to buy and sell; the market is too complicated for that. The real usefulness in identifying these patterns comes with the ability to interpret them and develop your strategies for playing the market.
How to Improve the Reliability of Meeting Line Patterns in Candlestick Trading?
Of course, knowing how to identify these patterns alone isn’t enough to be able to read the market; that is why investors utilize technical analysis of stocks to increase their success rate in predicting the outcome of individual stocks.
Technical analysis is the utilization of historical market data to predict trends. There are three basic tenets that all investors subscribe to where technical analysis, and according to fidelity.com, those are:
- “Market action discounts everything,”- Which tells us that a stock’s price reflects all currently known information about that stock.
- “Prices move in trends”- We have discussed identifying the beginning of a trend with the bullish and bearing meeting line patterns. This tenet assures us that while not foolproof, when the history of the stock shows common repeatable trends, that it is highly unlikely to break away from those old trends.
- “History repeats itself”- The basis of the market has always remained the same with its roots in human psychology. Throughout history, similar trends have been observed. They have developed into successful theories that investors use to predict upcoming market trends, and there is a reason they are so successful, and that is because of this tenet.
All of these tenets used together with your ability to identify the start in a market reversal, makes all the difference. Both of these concepts alone don’t do a lot when it comes to predicting the market, but when used together, they grant you a fair shot at predicting market trends.
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Conclusion
The market is a construct created by humans, and therefore, it is very unpredictable, and none of these methods are foolproof. However, learning these methods helps you gain insight into the psychology of the market and allows you to predict certain market trends to some extent.
It is crucial to practice identifying the beginning of these trends through the bullish and bearish meeting line patterns. As with anything, practice makes perfect.
All of these skills are like tools to be sharpened, and it is hard to use one tool without the other. There are always other patterns to look out for, and other aspects of technical analysis to research. Having the best possible tools at your disposal will give you the best possible chance at reading the enigma that is the stock market.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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