Last Updated on 21 September, 2020 by Samuelsson
Candlestick patterns are among the most used and well-known concepts in technical analysis. With their different shapes, each candlestick tells us a unique story about the market and what it has been up to. One candlestick pattern is the bullish side by side white lines.
A bullish side by side white lines is a three candle bullish continuation pattern that forms in an uptrend. After the first candle, which is positive, the market gaps up and forms another positive candle. The third candlestick gaps down, and manages to both close and open around the same levels as the previous bar.
In this article, we’re going to have a closer look at the bullish side by side white lines pattern. You’ll learn how to spot one, it’s definition, and how to improve the pattern for live trading. We’ll also take a look at some trading strategies that are based on the bullish side by side white lines.
Definition of Bullish Side by Side White Lines
For a candlestick pattern to be called a bullish side by side white lines, the following criteria apply:
- The first candlestick is positive, and forms in an ongoing uptrend.
- The second candlestick gaps up, and becomes a positive candle.
- The third candlestick gaps down so that it opens around the open of the previous bar. It then recovers and closes around the close of the previous bar.
The traditional interpretation of the pattern is that it indicates a short pause in the trend, after which it will continue.
The Meaning of the Bullish Side by Side White Lines
All candlestick patterns have their own unique meanings, and signal different things about the market. And this is information that we can use to form our own picture of what happened.
While it’s almost impossible or very hard to know what exactly happened in the market, trying to interpret and analyze the patterns we see is a great exercise in understanding the markets and how they work. And as you scrutinize the behavior of price, you might soon start to note recurrent patterns that eventually lay the foundation for a trading strategy. Watching price is a great way of hatching new trade ideas!
Having said all this, here is one way to interpret the bullish side by side white lines pattern.
As the market is in an uptrend, the current market sentiment is mostly bullish, and most market participants believe that the market is headed higher. As such, the first candle of the bullish side by side white lines forms into a tall positive candle.
The bullish sentiment spills over to the next day as the market performs a positive gap, and then a bullish day. However, after having gone up quite a lot, market participants start to worry that the market won’t have the strength to continue up. As such, sell orders hit the market, and upon the next open, it gaps down.
However, the bullish sentiment still is strong, which becomes apparent as a quite large share of the buyers find the market attractive at the current levels, and want to buy in. As a result, the market once again starts to go up, recovering from the negative gap. Soon it manages to get up to around the close of the previous bar.
As the buyers managed to return so quickly, most market participants view the negative gap as nothing more than a temporary pullback. And since the market came back with such strength, it signals that the bullish trend will continue, and make more people place buy orders, which ensures that the market heads higher and that the bullish trend continues.
Bullish Side By Side Example
Here follows an example of the pattern:
How to Use Bullish Side by Side in Trading: How to Improve the Pattern
You may read about a lot of different candlestick patterns and what they mean, but once you get to live trading very few of them are going to work well as is. You need to add filters and additional conditions to ensure that a pattern like the bullish side by side white line is profitable enough to be worth your time.
In addition to using the right filters, you will also have to make sure that you trade the right market and timeframe. Every market won’t work with the bullish Side by side white lines, since they all have different characters and traits. For example, some markets will work very well with trend following strategies, while others just tend to turn around upon making a new high, and work better with mean reversion strategies.
To see which market suits a pattern best, we recommend that you use backtesting.
Having said all this, we wanted to share with you a couple of filters that we have had quite a lot of success with, and that are part of our own trading strategies that we trade at the moment.
Let’s get started!
When we watch a price chart, we just see how the market has moved. And while it surely is possible to create great trading strategies that rely solely on the market’s movements, we might get a lot of value from adding volume to our trading!
Volume, which is a measure of the total number of exchanged securities, tells us quite a lot about the intensity and conviction of the market. Saying that volume adds a second dimension to your trading is not an overly bold statement!
However, as with everything in trading, it will be useful sometimes, and prove useless in other scenarios. As such you will have to test it yourself to see if volume adds some value to the pattern and filters you’re testing, be it the bullish side by side white lines pattern or something else.
Here are our favorite ways to apply volume to trading strategies:
1. Demand that the volume of this bar is higher or lower than that of the previous bar
2. Demand that volume is below or above the moving average of volume.
3. Require that volume is at an x-bar high or low.
As you might realize from the filters we just listed, high volume doesn’t always improve your setups. In fact, in many cases, it may be the other way around. Again, you’d better use backtesting to find out what works in your situation!
Momentum and Trend Strength
One type of filter that definitely has a chance of working with a continuation pattern like the bullish side by side white lines, is momentum and trend strength filters. Since the bullish side by side pattern indicates that the market is headed for new highs, there is a great chance that we can improve its performance by incorporating some filters that measure the strength of the trend.
Now, at first, you might assume that the stronger the trend, the better. However, it really could be the other way around, since calm and slowly rising trends often last longer.
Regardless of what conditions you want to use, the ADX indicator is a great help, and has become one of our most used indicators. Traditionally, readings above 20 suggest that the trend is fairly strong, while readings below 20 indicate a calm market, when used with the standard 14-period loockback period
However, our tests suggest that you shouldn’t limit yourself to using just these settings. We’ve repeatedly found that ADX may work with lengths from 5 or lower, up to perhaps 30, and recommend that you experiment to see what works best for you!
In our complete guide to ADX, you may read more about the indicator and its applications!
Bullish Side by Side White Lines Trading Strategies
Now that we have covered some ways to improve the bullish side by side white lines, we wanted to share some example trading strategies.
While the strategies below show how we would start to explore the side by side white lines, they’re not ready to be traded right away. Instead, treat the concepts below as inspiration for your own strategies, and you’ll get a lot of value from the content below!
Having said this, let’s have a look at two trading strategies that are based on the bullish side by side white lines pattern!
Trading Strategy 1: Bullish Side by Side White Lines With Gap Condition
As you might remember, one important aspect of the side by side white lines pattern is that the second candle gaps up a significant distance.
However, this is not the only gap in the pattern, as there should be a negative gap between the second and third candle.
Now, as the side by side white lines pattern suggests a continuation of the bullish trend, one logical way to construct a filter, would be to requre that the positive gap is taller than the negative gap. If that’s the case, it might suggest that bulls are extra strong, which gives us the confidence needed to take a trade.
As such, the rules for this strategy become that we go long if:
- There is a bullish side by side white lines forming in the chart.
- The positive gap is longer than the negative gap
We then exit the trade after 5 bars.
Trading Strategy 2: Bullish Side By Side White Lines With Volume Condition
In an earlier section of the article, we discussed volume and its impact on the performance of different patterns. However, applying it to the side by side white lines, we could create some tailormade conditions that take into account the characteristics of the pattern.
For example, we could demand that the volume of the second bar, that is the bar performing the breakout, is at least twice the size of the 5-period average of volume. That would indicate that the bulls are strong and ready to push the market to new heights.
As such, the conditions for this strategy become that:
- We have a bullish side by side white lines
- The volume of the second candle is higher than the moving average of volume
Then we exit the position five bars later
In this guide, we’ve had a closer look at the bullish side by side white lines pattern. We’ve covered its meaning and definition, and had some look at practical implementations of the pattern.
Now that we have come to the end of the article, we just wanted to provide some important advice. ALWAYS TEST YOUR STRATEGY OR EDGE ON HISTORICAL DATA, BEFORE TRADING IT LIVE!
Most things don’t work as you expect them too, which is why it’s paramount that you test your ideas BEFORE trading them live.
If you want to learn more about building trading strategies that work, we suggest that you take a look at any of these articles: