Separating Lines
There are two types of separating lines that we will discuss today. These include the bullish and the bearish separating lines.
Bullish separating lines are lines that move in opposite directions and act in the exact reverse manner as the meeting lines pattern. In order to qualify there must be a significant uptrend in progress and another day must occur in the opposite color as the current trend. In other words, there should be a long bearish (black or red) candlestick on the first day. Additionally, the second day must open at the open of the previous day, and it should open on its low for the day (or extremely close to it) and it should continue to go higher. This second day’s candle should be bullish and white or green. These lines resemble the bullish kicker signal however there is no gap between the real bodies.
What does this signal indicate is occurring in the markets?
The bullish separating lines indicate that the bulls have regained assurance after a bearish day in the markets. The uptrend should continue and this is shown as the prices open above a gap on the of the previous day. Furthermore the bears are able to bring the prices down below the .
This trend is confirmed by a bullish candlestick on the third day, a gap above opening on the third day, or a higher close on the third day. This confirmation is required.
Bearish separating lines are characterized by a white or green candlestick that occurs in a downtrend. This downtrend is quickly followed by a piercingly lower gap as the market opens the following day. It also displays an that is equal to the previous day’s and is also a lower closing price. In other words, a long white candlestick occurs on the first day after the market has been in a downtrend, then a black body is formed on the second day that has the same as the first day’s (or it is very close). This second day’s candlestick is considered to be a black opening marubozu.
What does this signal indicate is occurring in the markets?
The bearish separating lines indicate that the bulls may in fact be regaining control over the markets. It also provides careful concern for those shorting during this downtrend. Furthermore, if the second day opens with a downward gap, and if the is equal (or very close to) the previous day’s , then the bears will regain their composure in the markets. Basically, the lower that day closes the more confident the bears will be that the current downtrend will continue.
Confirmation is required on the third day for this continuation pattern as well in order to validate that the downtrend is still going strong. This confirmation can be in the form of a large gap down, a black candlestick, or a lower close on the third day.
This is only one of many continuation patterns that are used in Japanese Candlesticks. Japanese Candlesticks are the fastest way for new investors to quickly and accurately read stock charts. Once you are comfortable with the major candlestick signals continue to expand your expertise by learning the various secondary Candlestick Patterns. Combine these with your favorite technical analysis indicators and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or exchange traded funds.
