The Down Gap Side-By-Side White Lines pattern is the bearish version of the Up Gap Side-By-Side White Lines pattern. Like the Up Gap Side-By-Side White Lines pattern, the Down Gap Side-By-Side White Lines pattern is a trend continuation pattern with a moderate success rate. However, the nature of Down Gap Side-By-Side White Lines formation makes it a very rare continuation candlestick pattern. The Down Gap Side-By-Side White Lines must appear in an established downtrend before it is taken into consideration and even then, with its moderate success rate, trading this pattern requires a fair amount of caution.
The Down Gap Side-By-Side White Lines Formation
The Down Gap Side-By-Side White Lines pattern consists of three candlesticks of which the first candlestick is a bearish candlestick that is supportive of the underlying downtrend and is dark in color. This candlestick is followed by second candlestick that gaps down on open from the real body of the previous candlestick. It may overlap the lower shadow or wick of the prvious candlestick. The second candlestick turns bullish and closes higher than its open and is thus light in color. The second candlestick is followed by another light colored candlestick of a similar size that also gaps down on open but closes higher. The overlap between the real bodies of the two last candlesticks in the pattern gives it the 'side-by-side white lines' name.
Understanding the Down Gap Side-By-Side White Lines
The reason that the down gap side-by-side white line pattern is so rare is because a gap down in a downtrend in quite bearish, with the gap down indicating the strength of the bearish nature of the market. It is unusual for bears to surrender control and allow the bulls to close the candlestick higher, resulting in a light colored candlestick that gapped down.
The first candlestick is supportive of the downtrend, with the gap down on open of the second candlestick also supportive of the downtrend. However, the bullish close of the second candlestick is a threat to the bears, with weaker bears closing out their positions and locking in their profits. The latter represents a correction rather than a reversal and continues on the last candlestick in the pattern that also gaps down on open but closes higher. However, the market is more likely to continue with its bearish sentiment or start moving sideways rather than reverse direction.
Trading the Down Gap Side-By-Side White Lines
The Down Gap Side-By-Side White Lines is a bearish continuation pattern, therefore you would want to be on the short side. It is an opportunity to enter a short possition or add to an existing short possition. A short position could be initiated when a downside break below the low of the formation occurs. A potective stop may be placed at the high of the formation. However, as this is moderate pattern, with a moderate success rate and a modest expected price movement, a trader opening a new short position should be weary and ready to close their position if the pattern fails or the market starts moving sideways.