If you are at all familiar with day trading, then you may have come across a candlestick chart or two. It probably seemed a little complex, overwhelming, or may have even reminded you of a DNA reading, but the chart really is fairly simple to read. A candlestick chart gives much more information than a line graph ever could. Additionally, within candlestick charts, you can spot candlestick patterns. Each candlestick pattern represents a specific market psychology and can therefore be leveraged in forecasting the future movements on the price chart of a security. Side by side white lines is one such popular candlestick pattern.
Side by side white lines is a continuation candlestick pattern that comprises of three candlesticks. The pattern has two variations – bullish and bearish. In the bullish side by side white lines pattern, all three candlesticks forming the pattern are white or bullish. Contrarily, in the case of the bearish pattern, the first of the three candlesticks comprising the pattern is black or bearish.
Now that we have the basics out of the way, let us discuss in detail what the different types of side by side candlestick pattern are and how you can identify them. Further in this article, we will also discuss how you can make trading decisions by leveraging this pattern and the various advantages and limitations of trading using it.
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Table of Contents
Types of Side by Side White Line Candlestick Patterns
Candlestick charts are a wonderful way to keep track of stock and security prices from one day to the next. A simple line chart may show you a little information but a candlestick chart gives extreme detail of the price activity in the selected timeframe. When it comes to side by side white line pattern in candlestick trading, there are essentially two variations of this pattern that you should know. These are –
- Bullish or Up Side by Side White Lines Pattern – A bullish pattern simply means that the pattern is predicting that an uptrend in the market is expected to continue.
- Bearish or Down Side by Side White Lines Pattern – A bearish pattern is the opposite of a bullish pattern that intends to allow you to predict a downtrend in the market is expected to continue.
Both will show a prediction on how the market may continue, whether it will continue to rise or fall. Hence, the side by side white lines can give you a solid indication of what your next steps should be and how you should plan or manage your trades.
How to identify Side by Side White Lines Pattern in Candlestick Trading?
When looking at a candlestick chart and you see two or three white candles in a row, those will be what you need to read. Let us take a quick look at the construction of this pattern so that you have a perspective on what to look for when identifying this pattern.
Construction of Side by Side White Lines Pattern
In a bearish side by side white line pattern, it looks as follows:
- The first candle will be black or bearish and appear in a downtrend.
- The second will also be white but also have a low price above the high price.
- The third candle will have a white body and will be about the same size as the second and the low price will be above the first high price line.
In a bullish side by side white line pattern, it looks as follows:
- All candles will be white,
- The first will also show an uptrend.
- The second candle will have a low price above the prior high price.
- The third candle will be very close in size to the second candle.
How to Interpret Candlestick Patterns?
In candlestick trading, every candlestick tells its own little story of what happened that day, that week, or that month.
When you can understand these patterns, you will be able to predict different highs and lows that will occur in the market.
Traders will look at the candlestick’s color, body, and wicks.
The color of the candlestick is used to tell how the market moved in the past or how they are currently moving, and what might be the psychology of the market resulting in those moves.
The body of the candlestick shows the difference between the open and closing prices. If the body is long, then there has been a time of intense buying and selling. If it is short, then consolidation has been happening more often.
The wicks are sometimes referred to as a shadow, and they show the highest and lowest prices in the day, week, or month.
The top wick, referred to as the upper shadow, is the highest price. Whereas the bottom wick, referred to as the lower shadow, is the lowest price.
How to Trade Side by Side White Lines Pattern in Candlestick Trading?
Now that we have discussed the basics around the side by side candlestick pattern, let us get to the business and understand how you can trade using this pattern. Described below are different steps and considerations that you should account for in your trading plan centered around the side by side white lines pattern –
Market Environment
Buyers manage returns quickly. The negative gap is nothing more than a temporary pullback, which is what more people see.
When the market comes back, it signals the bullish trend will continue, at which time more orders are typically placed. This then, ensures the market heads higher and the bullish trend will continue.
Identify and Confirm Trade Opportunity
Knowing just when to trade is particularly important. When there are bullish side by side white lines appearing in the chart, and when the positive gap is longer than the negative gap, then exit the trade after five bars.
Determine Trade Entry, Stop Loss, and Take Profit Levels
If the gap is bigger you might see that the selling pressure is stronger than if the gap was smaller.
Choose the market for your strategy, come up with a trading idea, backtest the idea, evaluate, and further test your strategy, and then finally go live with that strategy.
Execute and Manage Trade
Some markets have time-based tendencies.
Looking for seasonal tendencies in the market will help you perform better during certain periods. This could be months, years, or just a day.
Advantages and Limitations of Trading Side by Side White Lines Patterns
Even though very effective in informing trade decisions, side by side white lines pattern does come with its own set of advantages and limitations. To make informed trading decisions, it is critical that you account for these pros and cons of trading using this pattern.
Therefore, in the following sections, let us take a brief look at the primary advantages and disadvantages of trading using this pattern.
Advantage of Trading Side By Side White Lines Pattern
Listed below are the primary advantages of trading side by side white lines pattern that you should account for in your trading plan –
- It stands out very well making it easy to read and find on a candlestick chart
- It is relatively easy to formulate a trading strategy around this pattern
- It is considered to be a reliable method of identifying upcoming continuations in price trends
Limitations of Trading Side By Side White Lines Pattern
Listed below are the primary limitations of trading side by side white lines pattern that you should account for in your trading plan –
- The pattern is very rare meaning that finding opportunities to use it will be very limited
- It is rarely reliable as a standalone indicator and needs to be coupled with another technical analysis tool to be really effective
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Conclusion
Candlestick charts will show you the open, high, low, and closing prices for a certain period, whereas line charts can only give you a glimpse of that.
Following along and knowing how to identify bearish and bullish candlestick patterns will also give you a leg up on seeing when to buy or sell. It is a very good idea to play around with different candlestick patterns on paper before dealing with real money.
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