Side by side white lines

Side by side white lines

• Direction: Bearish
• Type: Continuation
• Reliability: Moderate


• Day-one is a red day continuing an established downward trend.
• Day-two is a blue day, which opens well below the previous days close
• Day-three is a blue day with comparable body size and the same close price as the previous day

The occurrence of the two blue days in a downtrend is indicative of sellers covering their positions. The formation is a continuation indicator, signaling that the trend should remain bearish in the near future.

Psychology
Seeing two Bull candles in the middle of a down trend will usually make traders think twice about shorting here. But this formation tells candlestick analysts that despite the recent rallies, bears are still in firm control of the market

Day-one in this case offers the market benchmarks that need to be broken for a reversal signal to be set. Since the rallies on day-two and three cannot break the body of day-one, analysts know buyers do not really have control of the market. If anything the recent buy-backs potentially offer good entries for short positions.

Confirmation
Ideally the wicks on day-two and three should not trade up to the body of the first red candle.

In non-FX markets the gaps required for this formation will not occur. But the same price action is in fact seen from time to time. Between day-one close and day-two open there is a gap reflecting a sell-off while the exchange was closed. Because the Foreign Exchange market offers 24 hour access, FX traders would still be able to take advantage of this move, with the close on day-one equal to the open on day two.