In technical analysis, candlesticks are a visual representation of price action, displaying the strength of buyers and sellers in the market or security. The candlestick pattern can be identified and indicates the upcoming trend using the past price action.
In this article, we will discuss the Bullish Three Line Strike Pattern, its structure, the psychological pattern of candlesticks, how to trade the pattern with an example, and its advantages and disadvantages.
What is the Bullish Three Line Strike Candlesticks Pattern?
The Bullish Three Line Strike candlesticks pattern is a four-candlestick formation that indicates the continuation of the current uptrend. It is formed at the pullback or the testing of the support level after the breakout from the resistance level.
The term “Three Line” refers to the first three bullish candlesticks, indicating the strength of buyers dominating the trend.
Structure
The Bullish Three Line Strike candlestick pattern is spotted in the middle of an uptrend.
- First three candlesticks: Three bullish candlesticks are formed initially, all the candlesticks open above the high of the previous candlestick, confirming the uptrend’s continuation.
- Fourth candlestick: It is a strong bearish candlestick. Which opens above the high of the third candlestick but closes below the low of the first candlestick and fully covers all three previous candles.
The Bullish Three Line Strike candlestick pattern psychology
- Bullish Candlestick: The security is in an uptrend, and buyers are dominant, driving the price to its high, and forming new higher highs and higher lows, indicating further upward movement, with the formation of three consecutive bullish candlesticks.
- Sellers step in: At the fourth candlestick, the price is at its peak. The sellers see an opportunity and step in aggressively to push the price down to below the low of the first candlestick. The long bearish candlestick is formed.
- Buyers push up and Trend Confirmation: After the closing of the fourth candlestick, buyers step back in, driving the price higher again and indicating a strong uptrend ahead.
How to trade the Bullish Three Line Strike candlestick pattern?
The Bullish Three Line Strike candlesticks are versatile across all the frames.
Plan for a long position entry after the confirmation of the pattern formation.
Entry:
After the fifth candlestick closes with bullishness, a long position in the security is entered at the closing price of the bullish candlestick.
Stop-loss:
- The stop loss for the long position entered will be the low of the pattern formed.
Target:
- The primary target is the next resistance line.
- You can set the target for the trade according to your risk-reward ratios.
Example scenario:
In the image below, you can look at the chart of “ Rupa & Co Ltd” stock at a 1-hour timeframe from 31st October to 1st November 2024, and you can see the buy signal generated by the Bullish Three Line Strike candlestick pattern.
The advantages of the Bullish Three Line strike candlesticks pattern
- After a bullish candlestick, the pattern is highly reliable as it provides a higher reward with a small risk.
- It is versatile across all timeframes.
- It is easy to identify and trade the pattern.
- As it is a four-candlestick formation, the chances of false signals are low to provide the optimal entry and exit points.
The disadvantages of the Bullish Three Line strike candlesticks pattern
- Without the confirmation after the pattern, it is hard and risky to trade at the closing of the fourth candlestick.
- In a sideways market, a lack of volume or due to profit booking during the pullback can slow down the confirmation or result in false signals.
- It does not confirm the trend within the candlestick pattern.
In Closing
In this article, we discussed the Bullish Three Line Strike candlestick pattern, its structure, the psychology of the pattern, how to trade it, along with an example, and its advantages and disadvantages.
The Bullish Three Line Strike candlestick is a powerful candlestick signalling the potential continuation of an uptrend if you have missed the entry. At the same time, it offers multiple opportunities for beginners with clear entry and exit signals and making it an accessible and reliable pattern to trade.
In the financial markets, no indicator or tool is 100% accurate. When the Bullish Three Line Strike candlestick pattern is combined with additional indicators or tools, its efficiency and accuracy are high, and with proper risk management, discipline, and back testing of the strategy can pave the path to profitability.
