Bullish/Bearish Thrusting Line Pattern in Candlestick Trading

Technical analysts—traders that use the method of technical analysis—look for past trends and patterns to predict future price action and thus to guide their trades. A popular chart used by technical analysts is the candlestick chart, wherein there are certain established combinations and patterns of candlesticks which indicate changes or continuation on the market’s direction. The candlestick chart and candlestick patterns can be used for any type of security, including stocks, bonds, and commodities. One well-known candlestick pattern is the thrusting line pattern.

The thrusting line pattern is a two-candlestick pattern that can occur with bullish or bearish implications and is used most often to indicate trend continuation—although some argue that it can indicate a trend reversal.

In the remainder of this article, we will explain the composition, implications, and uses of thrusting line patterns in candlestick trading in more detail.

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Table of Contents

Types of Thrusting Line Candlestick Patterns

The thrusting line pattern can occur in two ways: in both cases, it can indicate a trend continuation, a brief breakout, or a reversal. It is much more common to see and use the bearish thrusting pattern than the bullish pattern.

Bearish: Black candle followed by a white candle opening below the first candle and closing between the prior close and midline.

Bullish: White candle followed by a black candle opening above the first candle and closing between the prior close and midline.

The bullish pattern is the inverse of the bearish pattern; however, the candles’ real body lengths can also influence the predicted outcomes after this pattern occurs.

How to Identify the Thrusting Line Pattern?

The thrusting line pattern is very similar to the piercing, the on-neck, and the in-neck patterns. The defining difference is found where the second candlestick closes.

Construction of Thusting Line Pattern

In a thrusting line pattern, the second candle will close between the midpoint and the close of the first candle.

If it closes beyond the midpoint of the first candle, it is a piercing pattern.
If it closes before the close of the first, that is to say, if the real bodies do not overlap, it is an on-neck pattern.
Finally, if the close of the first and second candles are equal, then it is an in-neck pattern.

Key Characteristics of Thrusting Line Pattern

While the thrusting line is characterized by two opposing candlesticks arranged in a specific manner, the length of the bodies, the amount of overlap, and the location of the pattern within the larger trend can change the pattern’s indications.

The First Candle has a Long Real Body: This indicates the strength of the trend. Furthermore, it makes it more difficult to reverse the trend because of the massive price difference between the midline and the close.

The Second Candle Closing Just Past the Prior Close: AKA a “Strong Continuation Thrusting Line.” This is a strong indication for a continuation of the trend because it shows that the bulls (or bears) cannot rally strongly against the bear (or bull) dominated market. Tip: This is still a thrusting line candle, not an in/on-neck candle, because the real bodies overlap, even if just a little bit.

The Second Candle Closing Neatly Between the Prior Close and Midline: AKA a “Medium Continuation Thrusting Line.” Although this, theoretically, still indicates a continuation, there is a potential for a reversal here.

The Second Candle Closing Just Before the Prior Midline: AKA a “Reversal Thrusting Line.” This is almost certainly an indicator for a reversal, as the opposing mentality has overcome much of the prior days’ trends.

Note: The shadows may be ignored when attempting to find and use these patterns.

How to Interpret the Thrusting Line Pattern?

In a downtrend, when a bearish thrusting line pattern would occur, the bears control the market. If the bulls try to regain control of the market but do not have enough momentum to regain the lost price, this pattern will occur. During the following trading periods, the bulls will lose their ground for a lack of buyers.

The inverse goes for a bull market experiencing a bullish thrusting pattern. The bears will not be able to bring the price down for more than one period—assuming the pattern is an accurate indicator of a continuing trend.

Support and Resistance

In the bearish case, the second candle’s close forms the resistance for price action, as the price is expected to continue to drop.

In the bullish case, the second candle’s close forms the support for the price action, as the price is expected to continue to rise.

These lines should be used to inform a trader where to place his stops. If not directly on the close, at least near it.

How to Improve the Reliability of Thrusting Line Patterns?

Thomas Bulkowski (2008) recommends a few characteristics and additional indicators to use when trading with thrusting line patterns to improve reliability:

Select tall candles.
Select candles with tall upper or lower shadows.
Use an oscillator to indicate trade volume and potential breakouts.
Use a 50-day moving average and look for breakouts across the lines of support and resistance.

Furthermore, in his research, Bulkowski found that in a bear market, the thrusting pattern only accurately predicted a continuation 43% of the time, and 57% of the time, it was followed by a bullish reversal. Although this is not necessarily conclusive, it does not bode well for the reliability of this indicator when used alone.

How to Trade with Thrusting Line Pattern?

Below are several example trades that could be made using the thrusting line pattern in conjunction with other technical analysis tools.

Strategy 1: Strong Continuation Bearish Thrusting Line Pattern

Described below are the steps that you should consider when taking continuation trades using the thrusting line pattern –

Market Environment: In a bear market, and when it is spotted, the pattern should indicate that the price will drop back down and continue to drop as the bears retain their hold on the market.

Identify and Confirm Trade Opportunity: After the pattern occurs, look for a third black candle that continues the bear trend.

Determine Trade Entry, Stop Loss, and Take Profit Levels: In this case, because the price is expected to drop further, one would short the market. Place a stop loss above (or around) the upper shadow of the second candle to prevent severe losses if the price action reverses before your exit. When you are trading with the trend, exit when you are comfortable, but before the next reversal.

To Confirm the Trend: Use a moving average, or a channel indicator such as a Keltner Channel, to create support and resistance for the price action and to warn of breakouts or trend changes.

Strategy 2: Reversal Thrusting Line Pattern

Described below are the steps that you should consider when taking reversal trades using the thrusting line pattern –

Market Environment: A bear market, but this pattern can be an indication of an imminent bullish reversal.

Identify and Confirm Trade Opportunity: When the next candle is also bullish and closes above the midline of the first candle in the pattern, this is a confirmation of the trend reversal and an indication to go long.

Determine Trade Entry, Stop Loss and Take Profit Levels: Because one now expects the price of the asset to rise, buy at the current price and hold until another trend reversal occurs—or until a sale would be prudent and convenient. The stop loss should be placed at (or around, depending on your predictions and risk appetite) the lower shadow of the second candle in the pattern.

To Confirm the Reversal: Use an oscillator indicator, such as a Stochastic Oscillator, to indicate market momentum, which can confirm the buying activity of the bulls and signal a trend reversal.

Advantages and Limitations of Trading Thrusting Line Patterns

While we have already covered it in bits and pieces above, listed in the following sections are the advantages and limitations of trading the thrusting line pattern.

Advantages of Trading Thrusting Line Patterns

Listed below are the advantages of trading the thrusting line pattern –

It provides easily identifiable lines of support or resistance
It provides a price level for the stop loss to be placed at

Limitations of Trading Thrusting Line Patterns

Listed below are the limitations of trading the thrusting line pattern –

Not a consistent trend continuation indicator
Not easy to spot, and can be confused with other patterns or parts of patterns

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Conclusion

Candlestick patterns are an excellent tool for assessing market psychology and price action. The thrusting line pattern, specifically, is a theoretically useful indicator to confirm market mentality and signal a continuation of a trend. It can occur in both a bull and a bear market and is easy to combine with other trend-following indicators. Furthermore, they offer traders specific points to enter and place stop losses.

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