There are five candlestick patterns that look similar. The On-neck line pattern, meeting line pattern, and in-neck line pattern are covered in previous articles already. This article is about the Thrusting candlestick pattern. We will talk about the Piercing line pattern in the next article.
Since these patterns look almost identical, it is confusing for a beginner why one pattern is a reversal signal but another two are continuation patterns. This has to do with the psychology of investors that each pattern reflects.
The Thrusting candlestick pattern is a continuation pattern.
This is how to spot a Thrusting candlestick pattern.
1) Like in all the patterns we are going to discuss, the long-term trend (1-year trend) should be in an uptrend. There is very little chance to succeed if the long-term trend is against your favor. Remember, it is difficult to swim against the tide. Our job as technical chart readers is to wait for the right time when the tide itself is going where we want to go.
2) The intermediate-term trend (3 months trend) should also be preferably bullish.
3) There should be a minor correction or a pullback. Remember, as a trend follower, a minor pullback after a bullish upswing is the best time to enter.
4) While in this minor correction or pullback, a long bearish candle forms in the downtrend.
5) A bullish (green) candle gaps down from the previous extended red candle. It closes below the mid-point of the previous candle.
This is also how this pattern got its name. The green candle indicates that the bulls are trying to thrust the trend upwards.
The rationale behind this pattern:
The formation of a green bullish candle is a bullish signal to some extend. Some bulls were able to defy the ongoing trend and raise the price by buying. However, the second candle not being able to close above the first candle’s midpoint means that while the bulls gave their best, they could not push the price beyond that. Thus, this premature aggression of bulls is not enough for a trend reversal.
Thus, the downtrend may continue for some time before another promising bullish reversal pattern appears. This is why the Thrusting candlestick pattern is called a bearish continuation pattern.