BULLISH THREE GAP DOWNS
Definition
This is a four-day bullish reversal pattern. It involves three consecutive days, each opening with a gap down. Following these Three Gap Downs, the market becomes significantly oversold, setting the stage for a reversal of the ongoing downtrend.
Recognition Criteria
1. The first day can be of any color.
2. The second day also can be of any color, so long as its body gaps down away from the first day’s body.
3. The last two days are black and their bodies must gap down from the bodies of the prior days.
Pattern Requirements and Flexibility
The first two days of the Bullish Three Gap Downs pattern can be of any color, but the last two days must be black. Additionally, there should be downside body gaps between the candlesticks.
Trader’s Behavior
The market is significantly oversold following three consecutive gap downs, signaling that it's time to cover short positions.
Buy/Stop-Loss Levels
The confirmation level is defined as the midpoint of the last black body. For confirmation, prices should rise above this level.
The stop-loss level is set at the lower of the last two lows. 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.