Last Updated on 7 September, 2021 by Samuelsson
The candlestick chart makes trading a bit easier because the candlesticks, alone or in a group of two or more, can form identifiable shapes and patterns that may tell a story about the market action. And, the thrusting pattern is one of the common candlestick patterns that price action traders look out for on their price charts.
As with any other candlestick patterns, the thrusting pattern can be used to find potential trading opportunities in the market, but it is often used in combination with other technical analysis tools like trend lines, moving averages, and support/resistance levels. But before we delve into thrusting pattern trading, let’s discuss what a thrusting pattern is, its morphology, and the psychology behind it.
What is the thrusting pattern?
A thrusting pattern is a pattern, found on the candlestick chart, formed by two consecutive candlesticks. The pattern is formed when the price is in a downswing, either in a downtrend or in a pullback in an uptrend. It is formed in a downswing when a long bearish candlestick is followed by a small bullish candlestick closes above the bearish one’s close but not up to the midpoint of the real body of the bearish candlestick.
This pattern is similar to the piercing candlestick pattern except that while the second candlestick in the piercing pattern closes above the midpoint of the real body of the first (bearish) candlestick, the second candlestick in the thrusting pattern does not get up to the midpoint of the first candlestick’s real body.
Depending on where the pattern appears, a thrusting pattern may be considered to be a bearish continuation pattern or a bullish reversal pattern. In a downswing (impulse wave) of a downtrend, the thrusting pattern is seen as a bearish continuation pattern. On the other hand, if the pattern appears at a support level in a pullback of an uptrend, it can be considered a bullish reversal pattern.
Thus, when attempting to trade the thrusting pattern, you need to consider the situation where it occurs and also analyze the pattern in combination with other trading tools.
The morphology of the thrusting pattern: how the pattern looks like
Basically, the thrusting pattern is a 2-candlestick pattern in which the first candlestick is long and bearish, while the second candlestick is a bullish candlestick that opened with a gap below the first candlestick and closed above its close but not up to its midpoint. And very importantly, this forms in a downward price swing.
From figure 1 above, the pattern’s morphology is as follows:
- First candlestick:
- is a candlestick in a downward price swing
- has a bearish real body
- appears as a tall marubozu candlestick
- Second candlestick:
- has a bullish body
- opens with a gap below the previous candlestick’s low
- closes above the previous candlestick’s closing price
- does not get up to the midpoint of the previous candlestick’s body
- appears as a long line
So it all begins with a downward price swing, which could be a downswing impulse wave in a downtrend or a downward corrective wave in an uptrend. Then a tall bearish candlestick is followed in the next trading session by a bullish candlestick that opened below the previous low but closed below the midpoint of the prior candlestick’s real body. The thrusting terminology refers to the bullish candlestick that initially gapped lower but soared higher to close above the prior candlestick’s close.
The psychology behind the thrusting pattern: interpreting the pattern
The thrusting pattern is not an easy one to analyze and interpret as it can have both a bullish implication and a bearish continuation significance, depending on where it is formed relative to the broad market perspective. Is the market in an uptrend or a downtrend? Is the pattern formed at a support level or not? What is certain is that this pattern appears in a downward price swing, but how the price reacts after the pattern appears would depend on many factors.
The first one is the nature of the downswing where the pattern occurs. Is it the downward impulse wave in a downtrend? In this case, the trend and the momentum are to the downside, so the price is likely to contend moving downwards after the pattern. Hence, the pattern, here, should be interpreted as a bearish continuation setup. On the other hand, if the pattern occurs at the end of a pullback (downswing) in an uptrend, it may be an indication that the pullback has exhausted its strength and the price is about to start climbing again, so it is interpreted as a bullish reversal setup. This is especially true if the pattern occurs at a demand level.
Another factor to consider is the price structure where the pattern occurs. When the pattern occurs around a support level, which can be a horizontal support level (a prior price reversal level) or a dynamic support level as indicated by an uptrend line or an ascending long-period moving average, it is likely to become a bullish reversal pattern, especially if the price trend is upward. If the thrusting pattern occurs in the middle of nowhere in a downtrend or has just broken below a support level, it is more likely a bearish continuation setup.
The third factor is the nature of the next candlestick. In a downtrend, a bearish continuation setup should be confirmed by a bearish candlestick following the pattern, and in that case, the candlestick should close below the second candlestick’s opening price. For a pullback in an uptrend, the next candlestick after the plan should be bullish and should close above the first candlestick’s opening price.
Judging the market sentiments behind the pattern, in a downtrend, the bullish second candlestick may be a result of early profit taking while the bears are still in control. In the case of a pullback in an uptrend, the second candlestick initially gapping lower and later turning to soar higher may be seen as a selling climax with the bulls coming in to seize control, which is confirmed by the next candlestick being bullish.
How to trade the thrusting pattern
Now, let’s look at how you can use the thrusting pattern in your trading. When trading any candlestick pattern, there are other factors to consider. You don’t trade the candlestick pattern alone.
- The direction of the trend: The first thing to do when performing technical analysis to look for a potential trade setup is to check the direction of the trend. This will tell you the direction to look for a trading opportunity because it’s better to stay in the direction of the trend. The direction of the impulse and corrective waves can give you a clue about the trend direction. In an uptrend, look for the thrusting pattern in a pullback to a support level and watch out for a confirmation of a bullish reversal. In a downtrend, look for the pattern as a breakdown in a downward impulse wave.
- Important price levels: The thrusting pattern is likely to occur at a support level. You can identify a support level on your chart by checking the level, below the current price action, where the price has reversed several times in the past. Depending on the direction of the trend, the thrusting pattern can either bounce off from the support level or break through it. In a downtrend, the thrusting candlestick may be a reaction to a downward break of the support level and the next candlestick might continue the down move. In an uptrend, the thrusting candlestick signals the beginning of a reversal from a pullback.
- Helpful trading tools: Some drawing tools and indicators can help you to delineate the trend and mark the support levels. Trend lines and moving average averages can help you see the trend, while you may use horizontal lines to indicate support levels. Both the moving averages and trend lines can act as dynamic support or resistance levels too, so look for the thrusting pattern when the price is around them.
- Confirmation signal: Even after identifying the trend and the support level and seeing a good thrusting pattern that is suitable for the trend direction, you need a confirmation signal before you place a trade. If the trend is upward and you see the pattern at the end of a pullback to a support level, the next candlestick needs to be bullish and close above the open of the first candlestick of the thrusting pattern before you can place a buy order. Let your stop loss be below the swing low and your profit target at the nearest resistance level. If the trend is downward and the thrusting pattern occurs in the impulse downswing, the next candlestick must be bearish and should close below the open of the second candlestick in the thrusting pattern before you go short. Your stop loss should be above the high of the first candlestick in the pattern, while your profit target should be above the next support level.
- Volume data: For exchange-traded security like stocks where the actual trading volume can be determined, a spike in the volume data when the confirmation candlestick forms also supports your analysis.
Here you can find our Candlestick archive with many articles covering the subject.