Among the dozens of candlestick formations, one of the most confusing is the "side-by-side lines" - because it comes in four distinct varieties and telling them apart is not easy.
These four types are:
1. Bullish side-by-side white lines
2. Bullish side-by-side black lines
3. Bearish side-by-side black lines
4. Bearish side-by-side white lines
All of these are three-day patterns. They each have the same formation but in different colors and directions. The bullish side-by-side white lines pattern consists of a long white candle in the first day and then a strong upside gap; a second white day and then a third white day that is approximately the same size and location as the second. The significance of the third day is that it does not retreat to fill the gap, and this is what makes it a strongly bullish reversal signal.
The bullish side-by-side black lines has the same pattern as the white lines; but days two and three are black. The big gap is one feature making this bullish; the other is the fact that days two and three do not retreat to fill the gap. Even though they are black, the overall pattern is considered bullish.
The bearish side-by-side black lines is the opposite of the bullish varieties. It starts with a long black candle and then a downside gap; and days two and three are both black. The fact that the second and third days do not fill the gap makes it strongly bearish.
The bearish side-by-side white lines is an enigma just as the bullish black lines version. It is unusual to see a bearish pattern with two white sessions out of the three. Here again, though, it is the large gap and the failure to retreat in and fill it, that makes this pattern so strong.
All candlestick indicators can fail, and the side-by-side versions are no exception. The endurance of the gap after a long day in the indicated direction are the keys to the strength of these three-day indicators. However, they are stronger when independently confirmed (or contradicted) Confirmation may come in the form of volume spikes or tests of trading ranges (support in the bullish patterns, or resistance in the bearish patterns). Failure is just as important and this is recognized when a subsequent movement offsets what the side-by-side appears to be telling you. This is especially applicable in the bullish black or bearish white varieties.
For example, if the day after the pattern of a bullish black is a third black candlestick and the three move downward, the creation of a black crows pattern may be stronger and more compelling that the previously shown bullish trend. In a bearish white, a third white day creating a white soldiers pattern may provide stronger new bull indication, contradicting what the bearish white first implied.
It's all a matter of interpretation. The side-by-side is confusing because of the mix of white and black days meaning either bull or bear, depending not only on the pattern itself, but on what else is going on with the chart.
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 recently released.
I also offer a bi-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 members can subscribe for a reduced rate. Join at Weekly Newsletter I look forward to having you as a subscriber.