BULLISH DOWNSIDE GAP TWO RABBITS
Definition
This pattern is a three-candlestick bullish reversal. The gap between the white body of the second day and the black body of the first day is known as the downside gap. The white candlesticks on the second and third days signify a potential bullish momentum, like rabbits ready to jump out of their burrow.
Recognition Criteria
1. The market is currently defined by a dominant downward trend.
2. A normal or long black candlestick appears on the first day.
3. The second day is a short white candlestick that gaps down.
On the final day, another white candlestick forms, opening at or below the open and closing above the previous day’s close, yet still below the close of the first day.
Pattern Requirements and Flexibility
The Downside Gap Two Rabbits pattern begins with a normal or long black body. This is followed by a short white body, characterized by a downside body gap. On the third day, another white body forms, engulfing the second day’s body. The third day may open at or below the second day’s opening and should close below the body limits of the first day, leaving the gap between the first and second days unfilled.
Trader’s Behavior
A downtrend has been in place, and the black candlestick adds to the bearishness that is already present. The following day opens lower with a gap down. Prices rise a little bit, and a short white candlestick is observed. The bears are not alarmed by this day, because even though a white body appears, prices fail to close above the close of the previous day. The third day opens at or below the open of the second day, but it rallies throughout the day and closes above the previous close. The two consecutive white bodies show that the strength of the downtrend has been questioned.
Buy/Stop-Loss Levels
The confirmation level is set at the last closing price. For confirmation, prices need to surpass this level.
The stop-loss level is set at the last low. After a BUY signal, the stop-loss is triggered if prices decline instead of rising and either close below the stop-loss level or record two consecutive daily lows below it, without any bearish pattern being detected.