 |
| Stick Sandwich Candlestick Patterns |
Type: two-way
Trend direction: Reversal
Types of Stick Sandwich Candlestick Patterns
Hello, dear friends. Traditional Japanese candlesticks are a
powerful tool for technical analysis in financial markets. They can be used to
predict trends, future price movements and identify other important price
action patterns. Candlesticks are a popular tool that is frequently used by
both beginner and experienced traders, as they are relatively easy to
understand and interpret. Especially in fast-moving and highly liquid markets
like Forex, Japanese candles are of great importance for shaping trading
decisions. One of these candlesticks is the Stick Sandwich candlestick pattern.
This pattern is typically seen at the end of an uptrend or downtrend and can
signal a possible reversal. There are two types of Stick Sandwich candlestick
patterns:
- Bearish Stick Sandwich candlestick pattern
- Bullish Stick Sandwich candlestick pattern
In this article, we will examine both Stick Sandwich candlestick patterns. We will discuss the definition of this pattern and its use in trading.
1. Bearish Stick Sandwich Candlestick Pattern
Definition
Bearish Stick
Sandwich is a candlestick formation that occurs within an uptrend and indicates
a reversal in the trend. It consists of three candles:
- First Candle: A long green (bullish) candle representing the current uptrend.
- Second Candle: A short red (bearish) candle. It opens above the opening price of the first candle and closes below the opening price of the third candle. This indicates a temporary weakness.
- Third Candle: A long green (bullish) candle. It opens below the closing price of the second candle but fails to reach the closing price of the first candle. This might create an impression that the uptrend continues, but it actually signals a possible change in the trend.
Bearish Stick Sandwich can be interpreted as a sign of
fatigue or weakness in an uptrend. The short bearish candle that follows the
strong rise in the first candle, followed by another bullish candle, can
indicate uncertainty in the trend and a possible reversal.
Trade Positioning
If the Bearish Stick Sandwich forms near a resistance level,
the likelihood of a trend reversal is higher. The Bearish Stick Sandwich can
create a selling opportunity in uptrends. After seeing the formation, it is
best to look for additional confirmation signals to wait for the trend to
reverse definitively. Take a look at the trading example in the following
L'OREAL stock:
 |
| Bearish Stick Sandwich Sell Signal in L'Oréal Stock |
Entry: As the Bearish Stick Sandwich pattern is
formed at the top of an uptrend, a sell or trend reversal is usually expected
after the close of the third candle. When setting an entry level, a break below
the third candle or confirmation of the decline by the next candle is expected.
Some traders may wait for the break to confirm the continuation of the decline,
while others may prefer to enter as soon as the price starts to decline.
Stop Loss: The stop-loss level is usually set outside
the trend where the pattern forms. This helps limit possible losses if the
trade fails.
Target: The target level can vary depending on how
far the downtrend might extend. Some may believe that the decline following the
pattern could continue to the size of the previous downward movement. However,
in determining the target, other technical analysis tools and market conditions
should also be taken into consideration. Additionally, Fibonacci retracement
levels, risk/reward ratio, and other technical analysis tools can be utilized.
2. Bullish Stick Sandwich Candlestick Pattern
Occurrence
The Bullish Stick Sandwich is a candlestick pattern that is
mostly seen at the bottom of a downtrend. This pattern can signal a trend
reversal and consists of three candles.
- First Candle: This candle forms during a downtrend and is typically a long red or black candle. It represents the current downtrend.
- Second Candle: This is a short green candle. It opens below the close of the first candle and closes above the open of the third candle. This represents a temporary strength in the trend.
- Third Candle: This is a long red candle. It opens above the close of the second candle but does not reach the close of the first candle. This can create the illusion that the downtrend is continuing, but this is not the case
The Bullish Stick Sandwich pattern typically occurs at the
bottom of a downtrend, when sellers are weakening and buyers are gaining
strength. This pattern might be viewed as an early indication of a forthcoming
bullish trend.
Trade Positioning
The Bullish Stick Sandwich pattern is more likely to signal
a trend reversal if it forms near a support level. This pattern can create a
buying opportunity in downtrends. After seeing the formation, it is best to
wait for the trend to reverse definitively and to use it in conjunction with
other analytical tools. Here is an example of a trade in Deutsche Bank stock:
 |
| Bullish Stick Sandwich Buy Signal in Deutsche Bank Stock |
Entry: When we think that an uptrend will begin in
the current trend, we can identify an entry point such as the high of the third
candle or the point where the pattern is confirmed and the price starts to move
in an upward direction.
Stop Loss: Commonly, a stop-loss is placed below the
formation of the pattern or outside the trend. This helps limit possible losses
if the trade is unsuccessful.
Target: When setting target levels, it is important
to consider other factors such as technical analysis tools and support levels.
In addition, it is also important to consider the capacity for the price to
rise as much as the pattern formation.
Please don't forget. One point to keep in mind is that no single candlestick pattern constitutes a trading strategy on its own. In technical analysis, it is risky to make a trading decision based on a single pattern. In trading, risk management and decision-making processes are of paramount importance. Formations like Stick Sandwich can be more effective when supported by other indicators and analysis tools.