The bullish sidebyside white lines pattern

The first bullish three-day trending pattern is the bullish side-by-side white lines pattern, and it's about as bullish as it gets. If you see this pattern on a chart, you can feel pretty confident that the prevailing uptrend is going to continue in grand fashion.

Spotting the bullish side-by-side white lines pattern

To locate the bullish side-by-side white lines pattern on one of your charts, first look for a day with a long white candle that's followed by a gap opening on the second day. That second day should develop into an up day that never retraces prices down to the high of the first day. Finally, look for an up third day that basically covers the same ground as the second day and definitely doesn't retrace to close the gap to the high of the first day. Sound confusing? The straightforward example in Figure 9-19 should clear things up.

Trading on the bullish side-by-side white lines

I provide a solid scenario for trading the bullish side-by-side white lines pattern in Figure 9-20, which is a chart of Tyson (TSN). Tyson is a large distributor of chicken, beef, and pork products. Because these commodities' prices vary due to tastes, weather, or competition, TSN can actually be a pretty interesting stock to trade.

The pattern in Figure 9-20 emerges in an uptrend that hasn't been in place for long. This sign is a positive in my book because the longer the trend, the more likely it will be reversing in the near future. The first day of the pattern is a white candle, followed by two more white candles that cover similar ground but don't close the gap with the high of the first candle. It's obvious that the bulls have been moving the price in their direction and the bears are continuing to lose the battle. And as you can see, that action continues for quite some time.

Figure 9-19:

The bullish side-by-side white lines pattern.

Figure 9-20:

The bullish side-by-side white lines pattern works well on a chart of TSN.

Figure 9-20:

The bullish side-by-side white lines pattern works well on a chart of TSN.

Although it can be considered a bit liberal, I like to use the low of the first day as a stop for this pattern. I choose that level because there's a gap involved in the formation of the pattern. Gaps are made to be filled, and I know that the bears will try to make a run at a gap like this. I would prefer not to be stopped out until they've succeeded in running the price below the low of the first day. On the chart in Figure 9-20, I highlight where the bears make a run at the bulls, but the bulls push back, and the uptrend remains in place.

When you spot a trending pattern that includes a gap, there's a possibility for some aggressive trading. There's a chance that the gap will be filled with the trend still in place, so you can place an order to buy in the gap and a stop at the low of the pattern. This strategy is aggressive because you can buy and sell in a short period of time as the bears take over. But if you can execute the move properly, it'll allow you to enjoy a very good entry price in the midst of an uptrend.

The bullish side-by-side white lines failing to indicate more bullishness

Even though the bullish side-by-side white lines pattern is generally a bullish powerhouse, it's possible for the pattern to fail. For an example, take a look at Figure 9-21.

Figure 9-21 is a chart of Analog Devices Inc. (ADI), a producer of semiconductors used in products that range from computers to DVD players. Because its chips are used in several products that can be considered discretionary purchases, its stock — as well as the stocks for just about every other company that makes semiconductors — hinges on the overall economy and is therefore very volatile.

Figure 9-21:

The bullish side-by-side white lines fails on a chart of ADI.

Figure 9-21:

The bullish side-by-side white lines fails on a chart of ADI.

The pattern in Figure 9-21 emerges at what appears to be the beginning of a very strong uptrend. There are a few strong up days followed by a gap up and two more white lines, which make up the pattern in this case. Because so much ground was covered so quickly by the pattern, it may be prudent to place a buy order in the gap that was created with the pattern, because there may be some price retracement where a better buying point would occur. Then you may place a sell stop below the low of the first day. It turns out to be a lousy prospect because the gap and the low were both taken out on the day I labeled as the failure day, but those losses pale in comparison to what you could expect if you bought at the end of the pattern.

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