Bullish thrusting lines

The first trend-confirming pattern I cover here may be a bit difficult to pick out of a chart at first glance, but it's worth understanding and looking out for it. Unlike the double-stick patterns I describe in the preceding sections in this chapter, it's critical that the bullish thrusting line pattern appears during an uptrend, not a downtrend, because this pattern would be confirming the direction of an uptrend, but wouldn't have much significance during a downtrend.

Recognizing a bullish thrusting line pattern

The setup day of a bullish thrusting line is a long white candle, bullish in pretty much any market. The signal day is a black candle. This black candle should have a gap opening higher than the high of the setup day and a close near the day's low. However, the close of the signal day should be above the midpoint of the first day. For a bona fide bullish thrusting line, check out Figure 7-22.

Trading on a bullish thrusting line

On the setup day of a bullish thrusting line (and for several days before that), the bulls have been in charge of the price action. On the signal day, the bulls push a stock to a gap opening, which brings in some sellers, but the sellers don't push hard enough to get the closing price under the midpoint of the previous day. This means that the bulls are still around and poised to take control. That can be a big help if you're considering buying, because the bullish signal from this pattern can give you a chance to get on board at a reasonable price before the stock continues to go up.

Figure 7-22:

The bullish thrusting line.

Figure 7-23 is an example of the bullish thrusting line showing up on a chart of International Paper Co., symbol IP. The setup day is an up day, followed by a gap opening. The stock trades off a bit on the signal day after opening higher, but it manages to close above the midpoint of the first day of the pattern (hooray!). For a few days after this signal, the stock trades sideways, but then resumes the uptrend.

Figure 7-23:

The bullish thrusting line on a chart of IP.

Figure 7-23 is an example of the bullish thrusting line showing up on a chart of International Paper Co., symbol IP. The setup day is an up day, followed by a gap opening. The stock trades off a bit on the signal day after opening higher, but it manages to close above the midpoint of the first day of the pattern (hooray!). For a few days after this signal, the stock trades sideways, but then resumes the uptrend.

Notice that the stock doesn't violate the low of the first day of the pattern — that's the stop level I use when trading on this pattern. I suggest that you use the same, and you can see why in the next example.

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