Recognizing a bullish meeting line pattern

The setup day of this pattern is a long black candle, and the signal day is a long white candle. The closing prices of the two days are equal or nearly equal, which indicates that the bears controlled the setup day. There's also a gap down opening, which shows that the bears are still in control at the beginning of the signal day, but the bulls soon arrive on the scene. As the signal day progresses, the low opening price brings in buying activity and a close that reaches the previous day's close and eliminates the gap that was created on the opening.

Figure 7-16 is a picture of how bullish meeting lines appear on a chart. Making a successful trade using bullish meeting lines

For a successful example of trading on the bullish meeting line pattern, I use an example of Post Properties, Inc., a real estate company specializing in apartment complexes (and a former landlord of your author). The company trades under the symbol PPS.

Figure 7-16:

The bullish meeting lines.

The chart in Figure 7-17 reveals a pattern that shows up during a downtrend, and the setup day is very bearish. The signal day has a gap opening on the down side, but after trading lower, appears to recover and close near the previous day's close, completing a bullish meeting line pattern. The following day has a threat of support being broken as the stock trades lower than the signal day's open, but the low of that day holds. The result is a few days of very bullish trading. Spotting the bullish meeting lines and getting in at the right time would yield some substantial profits in a case like this.

To give you an idea of what failing bullish meeting lines look like, check out the chart of U.S. Treasury bond futures in Figure 7-18. True to form, the contract is in a downtrend, and the pattern shows up where I've highlighted on the chart. The pattern appears to be validated as the next couple of days aren't necessarily bullish, but the low of the signal day isn't violated. However, on the third day after the pattern is completed, the bears take over again, and the downtrend is back in place. Again, putting a wise sell stop in place at either the low or the open of the signal day would served as a nice tourniquet.

Figure 7-17:

The bullish meeting line pattern on a chart of PPS.

Figure 7-17:

The bullish meeting line pattern on a chart of PPS.

Figure 7-18:

A failing bullish meeting line pattern on a chart of U.S.

Treasury bond futures.

Figure 7-18:

A failing bullish meeting line pattern on a chart of U.S.

Treasury bond futures.

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