Seeking Alpha

Thomsett's  Instablog

Thomsett
Send Message
Michael C. Thomsett is a widely published options author. His "Getting Started in Options" (Wiley, 9th edition) has sold over 300,000 copies. He also is author of "Options Trading for the Conservative Investor" and "The Options Trading Body of Knowledge" (both FT... More
My company:
Michael C. Thomsett, author
My blog:
Thomsett Options
My book:
Getting Started in Stock Investing and Trading
  • 3 Line Pattern Variations – Subtle But Insightful Candlestick Continuation Signals 0 comments
    Jun 23, 2013 9:15 AM

    Chartists benefit from becoming familiar with three specific kinds of candlestick continuation signals. These are thrusting lines, separating lines and neck lines.

    A thrusting line is a two-session indicator. The bullish thrusting line begins with a long white candle and is followed by a long white candle. The second day gaps upward (meaning the top of the black session is separated from the top of the white session. The second session closes the gap, however, and closes within the range of the first session, preferably higher than half way.

    The bearish version starts out with a long black candle, a downward gap, and a second white session that rises to fill the gap; it them closes within the range of the first session, preferably below the half-way point.

    These patterns are subtle in a couple of ways. First, they contain gaps not visible at first glance. Second, they are more difficult to spot than the more obvious two-session indicators. Even so, the pattern is important when it signals continuation of the current trend.

    The second type is called separating lines. The bullish version starts out with a black session, then a strong gap up, with the second session opening at about the same price as the previous day. However, the second session is a white candlestick. Continuation is indicated strongly when the bears are not able to turn the direction.

    The bearish version starts with a white candlestick, and then a gap down to the opening price. The second session is black and opens at about the same price as the previous session, but instead of moving up it goes down. Like the thrusting lines pattern, the separating lines provides a strong signal of continuation in the current trend.

    The third and final type is called the neck line. They may be "in neck" or "on neck." The in neck type has some overlap between the two sessions, whereas the on neck type has the first day's close and the second day's close at about the same price. In the bullish variety, a long white day gaps up and then a smaller black day opens higher but finishes at about the same price as the previous session.

    The bearish type starts with a long black day, a downward gap, and then a smaller second session that closes at about the same price as the previous session.

    In all of these "lines" patterns confirmation is indicated by the lack of momentum for price moving away from the existing trend. With that in mind, continuation can be indicated only if the current trend first exists. So a bullish line pattern must appear in an uptrend; and a bearish line pattern can only be valid in a downtrend.

    All candlestick patterns, especially those as subtle as the lines patterns, should be confirmed independently by other signs, notably repetitive gapping action or tests of resistance or support.

    To gain more perspective on insights to trading observations and specific strategies, I hope you will join me at ThomsettOptions.com where I publish many additional articles. I also enter a regular series of daily trades and updates. For new trades, I usually include a stock chart marked up with reversal and confirmation, and provide detailed explanations of my rationale. Link to the site at ThomsettOptions.com to learn more. As a new member, if you buy a one-year subscription, you also get a free copy of one of my books, including this new one just released.

    I also offer a weekly newsletter subscription if you are interested in a periodic update of news and information and a summary of performance in the virtual portfolio that I manage. The newsletter is free until August 1; after that, it requires a paid subscription, but it is included free with a membership on the site. Join at Weekly Newsletter I look forward to having you as a subscriber.

Back To Thomsett's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.