Offhand, if you had to guess, based purely on the name, I bet that you would think the Separating Lines pattern heralds a reversal. After all, a separation hints at a change in sentiment, which would lead one to believe that the tables have turned. Have the bears passed the reins to the bulls or vice versa? In fact, no. The Bullish Separating Lines pattern is a continuation signal in which the bears briefly control the market before the bulls sweep in, continuing the prior uptrend.
Bullish Separating Lines Pattern
With just two candles – one black (or red) and one white (or green) – the Bullish Separating Lines pattern is easy to learn and spot. To confirm its presence, seek out the following criteria:
First, the pattern must begin with a clear and defined uptrend. Second, a long bearish candle (black or red) must appear. Third, the next day must be defined by a long bullish candle (white or green), which will open at the same place the first day opened.The white candle should not have a lower wick, which means that the price can not drop below the opening price throughout the course of the session.
Although they share the same opening price, the two candles of the pattern separate by moving in opposite directions. The signal is both simple and unique.
Following an established uptrend, in which the bulls dominate the market, the bears seize control for a time. The price drops significantly downward during the bears' reign, but their time in power is limited. On the second day, the price gaps sharply upward, so that the day opens at the same place the previous day opened. Then, relishing their recovery of the market, the bulls propel the price significantly upward. The uptrend can be expected to continue.
Although the signal begins with a major drop, the remainder is a steady climb upward. Between the close of the first day and the open of the second, the market completes one big jump. The second jump occurs during the course of the next day, forming a long white candle. With two great leaps, the Bullish Separating Lines pattern indicates that the trend already underway is expected to continue. It also conveys the trend's strength, proving that even after a setback, the bulls will come back with full force and regain control. The longer the candles in the Bullish Separating Lines signal, the more reliable the pattern.
Although scarce, the Bullish Separating Lines signal can be relied upon as a strong continuation pattern. However, before making any trades based on the signal's presence, check for confirmation by waiting for a white candle that will continue the uptrend. You could also look for a gap up or a higher close. Good luck!
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