In the changing realm of trading, it is essential to gain expertise in efficient strategies to achieve success. A strategy that has become popular for its simplicity and potential profitability is the Bearish Three Line Strike candlestick pattern.
This article aims to explore the formation, trading strategy, psychology and components of the Bearish Three Line Strike White pattern for a more direct approach.
Bearish Three Line Strike Candlestick Pattern – Definition
Bearish Three Line Strike is a multiple candlestick pattern that signifies the continuation of price towards a downtrend in security. It consists of three consecutive bearish candles, followed by a large green candle.The pattern formation represents a short pullback in the existing trend signalling a potential emergence of the downtrend continuation.
Bearish Three Line Strike – Identification
As the Bearish Three Line Strike Candlestick pattern suggests a bearish Continuation, it is preferable for this pattern to appear in the middle of a downtrend. Now, let us understand the formation of each candle in this pattern:
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- The first three candles are red candles, where each candle closes lower than the prior candle.
- The fourth candle is a green candle that opens lower than the prior candle’s close and closes above the first candle’s high.
Bearish Three Line Strike Candlestick Pattern – Psychology
The three consecutive selling candles indicate strong selling pressure, while the fourth bullish candle suggests a retest of the previous high. This reflects a temporary pullback in the market due to profit-taking, but the underlying trend is considered to be intact.
This pattern is confirmed when the price breaks below the low of the fourth bullish candle, indicating the bears are still in control. The psychology behind this pattern is rooted in the idea that the market is experiencing a temporary slowdown in the downtrend, but the underlying trend remains strong, making it a reliable signal for traders to enter short positions.
Bearish Three Line Strike Candlestick Pattern – Trading Ideas
In a strong prevailing downtrend, the formation of the bearish Three Line Strike pattern indicates the continuation of a further bearish trend. It signals an entry to the short position to ride the downtrend.
Entry:- Enter a short position in a security at or above the low price of the fourth(green) candle of the pattern formed.
Stop loss:- The high price of the pattern formed can be set as a stop loss in view of a good risk-to-reward ratio.
Profit Target:- As the pattern doesn’t define any profit targets, it can be set based on the risk-reward ratio or the next support levels associated with the chart.
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Bearish Three Line Strike – Example
In the above chart of Wipro, we can observe the formation of the bearish three-line strike candlestick pattern in a downtrend. As discussed in this article, the price saw a continuation in trend after the formation of the pattern.
At the time of the formation of this pattern, a trader could have taken a short position when the price of the stock started trading below Rs. 384.65 and the stop loss was at Rs. 388.70.
Bearish Three line Strike – Limitations
While the Bearish Three Line Strike is a powerful continuation signal, traders should be aware of its limitations while spotting trading opportunities.
As the fourth candle in the pattern entirely engulfs the prior three candles, it can also suggest the bulls overtaking the bears. Thus, it is important to interpret overall market conditions and also use other technical indicators to confirm that the overall bearish trend is still intact.
Conclusion
The bearish three-line strike is a strong tool for traders to identify potential bearish reversals in the security. Understanding its formation, strategies and limitations, helps traders to make informed trading decisions.
As a trader, it is always preferred to use the pattern in conjunction with other technical tools to avoid false signals. Also, proper risk management with good risk-reward ratios and backtesting makes a trader profitable in the long run.
Written by Deepak
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