The Separating Lines Candlestick Pattern
The Separating Lines candlestick pattern is a trend continuation pattern that consists of two candlesticks of alternating colors. It can be bullish or bearish, depending on the trend that it occurs in. The distinguishing feature of the Separating Lines pattern is that the two candlesticks that comprise the pattern have the same or similar opening level but differ in color.
Bullish Separating Lines
The bullish separating lines pattern is a bullish trend continuation pattern that should appear in an existing uptrend for it to be of significance. The first candlestick in this pattern is a bearish candlestick that is dark in color and moves against the current trend. This candlestick represents a small pullback. However, the second candlestick in the pattern totally disregards this pullback by gapping up to open at the same price, or very close to it, as the previous candlestick. The second candlestick then proceeds to close higher, continuing the current uptrend.
Psychologically, the first bearish candlestick occurs with the market slightly overbought. This bearish candlestick gives the bulls something to ponder as it indicates a possible weakening of the uptrend. However, the bullish negation of the pullback gives the bulls renewed confidence that the trend still has momentum. With this renewed confidence, the trend is more likely to continue than reverse.
Bearish Separating Lines
The bearish separating lines pattern is the opposite of its bullish counterpart. it is a bearish trend continuation pattern that should appear in an established downtrend. The first candlestick in the bearish version of the Separating Lines pattern is a bullish candlestick that is light in color and moves countertrend. This candlestick represents a small or minor correction. However, the next candlestick in the pattern totally disregards this correction and gaps down up to open at the same or similar price as the previous candlestick. The second candlestick then proceeds to be bearish by closing lower and being supportive of the current downtrend.
The psychology is similar too, with the first bullish candlestick appearing with the market somewhat oversold. This bullish candlestick gives the bears some concern as it moves against the downtrend, indicating some weakening in the trend. However, the second candlestick gives the bears renewed confidence that the trend still has strength. With this renewed confidence, the downtrend is more likely to continue rather than being supplanted by an uptrend.