When you hear the term "three strikes," you probably think of baseball. Three strikes and you're out! Depending on which team you're rooting for and who is at bat, that third strike could be frustrating or gratifying. When it comes to Japanese candlesticks, there are two forms of Three Line Strikes, one bullish and one bearish. Today we're focusing on the Bullish Three Line Strike, a rare candlestick pattern that forms during an uptrend. Composed of four candles – three white and one black – this signal indicates that a continuation of the current trend is likely.
Bullish Three Line Strike
Despite its name, the Bullish Three Line Strike actually contains four candles, three of which are considered "strikes." After the initial trio of progressive candles, a fourth candle strikes down to lower the price. For help spotting this elusive signal, look for the following characteristics:
First, an uptrend must be in progress. Second, a white (or green) candle must appear on the first day. Third, another white candle must appear on the second day, closing higher than the previous day. Fourth, a third white candle must appear on the third day, again closing higher than the previous day's close. These candles continue the established uptrend. Fifth, those three escalating white candles should be followed by a black (or red) candle, which opens higher than the previous candles but then dips down, closing below the first candle's opening price. In the end, this fourth candle should contain the real bodies of the three previous candles within its length.
Following a clear upward movement, three white candles appear. The bulls are in control and the price is progressing steadily, forming a solid uptrend also known as the Three White Soldiers formation. However, this advance is reversed and tempered by the appearance of a black candle. The sudden power of the bears greatly reduces the risk of a reversal, because it has so swiftly thrust the price down in the course of one day. It has erased the progress of the past few intervals. Thus, following the black candle, the uptrend is expected to resume.
A bullish continuation pattern, the Bullish Three Line Strike typically signals that the current trend will continue. However, this isn't always the case. Sometimes, when the pattern is flighty and less reliable, it will actually herald a reversal of the uptrend. For this reason, it is important that you always check for confirmation. Watch the days that follow for an indication. A white candle, a large gap up, or a higher close all point toward a continuation of the uptrend.
If you’re interested in mastering some simple but effective swing trading strategies, check out Hit & Run Candlesticks. Our methods are simple, yet powerful. We look for stocks positioned to make an unusually large percentage move, using high percentage profit patterns as well as powerful Japanese Candlesticks. Our services include coaching with experienced swing traders, training clinics, and daily trading ideas. To sign up for a membership, please click here.